-CITE-
26 USC Subchapter N - Tax Based on Income From Sources
Within or Without the United States 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
-HEAD-
SUBCHAPTER N - TAX BASED ON INCOME FROM SOURCES WITHIN OR WITHOUT
THE UNITED STATES
-MISC1-
Part
I. Source rules and other general rules relating to
foreign income.
II. Nonresident aliens and foreign corporations.
III. Income from sources without the United States.
IV. Domestic international sales corporations.(!1)
V. International boycott determinations.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Sec. 1012(h)(2)(D), Nov. 10,
1988, 102 Stat. 3503, substituted "Source rules and other general
rules relating to foreign income" for "Determination of sources of
income" in item for part I.
1976 - Pub. L. 94-455, title X, Sec. 1064(b), Oct. 4, 1976, 90
Stat. 1653, added item V.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in section 555 of this title.
-FOOTNOTE-
(!1) Editorially supplied. Part IV added by Pub. L. 92-178 without
corresponding amendment of subchapter analysis.
-End-
-CITE-
26 USC PART I - SOURCE RULES AND OTHER GENERAL RULES
RELATING TO FOREIGN INCOME 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-MISC1-
Sec.
861. Income from sources within the United States.
862. Income from sources without the United States.
863. Special rules for determining source.
864. Definitions and special rules.
865. Source rules for personal property sales.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Secs. 1012(e)(3)(B), (h)(2)(C),
1018(u)(37), Nov. 11, 1988, 102 Stat. 3500, 3502, 3592, substituted
"SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN INCOME"
for "DETERMINATION OF SOURCES OF INCOME" as part I heading,
substituted "Special rules for determining source" for "Items not
specified in section 861 or 862" in item 863, and added item 865.
1986 - Pub. L. 99-514, title XII, Sec. 1215(b)(2), Oct. 22, 1986,
100 Stat. 2545, substituted "Definitions and special rules" for
"Definitions" in item 864.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 306, 818, 901, 905 of this
title.
-End-
-CITE-
26 USC Sec. 861 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 861. Income from sources within the United States
-STATUTE-
(a) Gross income from sources within United States
The following items of gross income shall be treated as income
from sources within the United States:
(1) Interest
Interest from the United States or the District of Columbia,
and interest on bonds, notes, or other interest-bearing
obligations of noncorporate residents or domestic corporations
not including -
(A) interest from a resident alien individual or domestic
corporation, if such individual or corporation meets the
80-percent foreign business requirements of subsection (c)(1),
and
(B) interest -
(i) on deposits with a foreign branch of a domestic
corporation or a domestic partnership if such branch is
engaged in the commercial banking business, and
(ii) on amounts satisfying the requirements of subparagraph
(B) of section 871(i)(3) which are paid by a foreign branch
of a domestic corporation or a domestic partnership.
(2) Dividends
The amount received as dividends -
(A) from a domestic corporation other than a corporation
which has an election in effect under section 936, or
(B) from a foreign corporation unless less than 25 percent of
the gross income from all sources of such foreign corporation
for the 3-year period ending with the close of its taxable year
preceding the declaration of such dividends (or for such part
of such period as the corporation has been in existence) was
effectively connected (or treated as effectively connected
other than income described in section 884(d)(2)) with the
conduct of a trade or business within the United States; but
only in an amount which bears the same ratio to such dividends
as the gross income of the corporation for such period which
was effectively connected (or treated as effectively connected
other than income described in section 884(d)(2)) with the
conduct of a trade or business within the United States bears
to its gross income from all sources; but dividends (other than
dividends for which a deduction is allowable under section
245(b)) from a foreign corporation shall, for purposes of
subpart A of part III (relating to foreign tax credit), be
treated as income from sources without the United States to the
extent (and only to the extent) exceeding the amount which is
100/70th of the amount of the deduction allowable under section
245 in respect of such dividends, or
(C) from a foreign corporation to the extent that such amount
is required by section 243(e) (relating to certain dividends
from foreign corporations) to be treated as dividends from a
domestic corporation which is subject to taxation under this
chapter, and to such extent subparagraph (B) shall not apply to
such amount, or
(D) from a DISC or former DISC (as defined in section 992(a))
except to the extent attributable (as determined under
regulations prescribed by the Secretary) to qualified export
receipts described in section 993(a)(1) (other than interest
and gains described in section 995(b)(1)).
In the case of any dividend from a 20-percent owned corporation
(as defined in section 243(c)(2)), subparagraph (B) shall be
applied by substituting "100/80th" for "100/70th".
(3) Personal services
Compensation for labor or personal services performed in the
United States; except that compensation for labor or services
performed in the United States shall not be deemed to be income
from sources within the United States if -
(A) the labor or services are performed by a nonresident
alien individual temporarily present in the United States for a
period or periods not exceeding a total of 90 days during the
taxable year,
(B) such compensation does not exceed $3,000 in the
aggregate, and
(C) the compensation is for labor or services performed as an
employee of or under a contract with -
(i) a nonresident alien, foreign partnership, or foreign
corporation, not engaged in trade or business within the
United States, or
(ii) an individual who is a citizen or resident of the
United States, a domestic partnership, or a domestic
corporation, if such labor or services are performed for an
office or place of business maintained in a foreign country
or in a possession of the United States by such individual,
partnership, or corporation.
In addition, compensation for labor or services performed in the
United States shall not be deemed to be income from sources
within the United States if the labor or services are performed
by a nonresident alien individual in connection with the
individual's temporary presence in the United States as a regular
member of the crew of a foreign vessel engaged in transportation
between the United States and a foreign country or a possession
of the United States.
(4) Rentals and royalties
Rentals or royalties from property located in the United States
or from any interest in such property, including rentals or
royalties for the use of or for the privilege of using in the
United States patents, copyrights, secret processes and formulas,
good will, trade-marks, trade brands, franchises, and other like
property.
(5) Disposition of United States real property interest
Gains, profits, and income from the disposition of a United
States real property interest (as defined in section 897(c)).
(6) Sale or exchange of inventory property
Gains, profits, and income derived from the purchase of
inventory property (within the meaning of section 865(i)(1))
without the United States (other than within a possession of the
United States) and its sale or exchange within the United States.
(7) Amounts received as underwriting income (as defined in
section 832(b)(3)) derived from the issuing (or reinsuring) of
any insurance or annuity contract -
(A) in connection with property in, liability arising out of
an activity in, or in connection with the lives or health of
residents of, the United States, or
(B) in connection with risks not described in subparagraph
(A) as a result of any arrangement whereby another corporation
receives a substantially equal amount of premiums or other
consideration in respect to issuing (or reinsuring) any
insurance or annuity contract in connection with property in,
liability arising out of activity in, or in connection with the
lives or health of residents of, the United States.
(8) Social security benefits
Any social security benefit (as defined in section 86(d)).
(b) Taxable income from sources within United States
From the items of gross income specified in subsection (a) as
being income from sources within the United States there shall be
deducted the expenses, losses, and other deductions properly
apportioned or allocated thereto and a ratable part of any
expenses, losses, or other deductions which cannot definitely be
allocated to some item or class of gross income. The remainder, if
any, shall be included in full as taxable income from sources
within the United States. In the case of an individual who does not
itemize deductions, an amount equal to the standard deduction shall
be considered a deduction which cannot definitely be allocated to
some item or class of gross income.
(c) Foreign business requirements
(1) Foreign business requirements
(A) In general
An individual or corporation meets the 80-percent foreign
business requirements of this paragraph if it is shown to the
satisfaction of the Secretary that at least 80 percent of the
gross income from all sources of such individual or corporation
for the testing period is active foreign business income.
(B) Active foreign business income
For purposes of subparagraph (A), the term "active foreign
business income" means gross income which -
(i) is derived from sources outside the United States (as
determined under this subchapter) or, in the case of a
corporation, is attributable to income so derived by a
subsidiary of such corporation, and
(ii) is attributable to the active conduct of a trade or
business in a foreign country or possession of the United
States by the individual or corporation (or by a subsidiary.)
For purposes of this subparagraph, the term "subsidiary" means
any corporation in which the corporation referred to in this
subparagraph owns (directly or indirectly) stock meeting the
requirements of section 1504(a)(2) (determined by substituting
"50 percent" for "80 percent" each place it appears).
(C) Testing period
For purposes of this subsection, the term "testing period"
means the 3-year period ending with the close of the taxable
year of the individual or corporation preceding the payment (or
such part of such period as may be applicable). If the
individual or corporation has no gross income for such 3-year
period (or part thereof), the testing period shall be the
taxable year in which the payment is made.
(2) Look-thru where related person receives interest
(A) In general
In the case of interest received by a related person from a
resident alien individual or domestic corporation meeting the
80-percent foreign business requirements of paragraph (1),
subsection (a)(1)(A) shall apply only to a percentage of such
interest equal to the percentage which -
(i) the gross income of such individual or corporation for
the testing period from sources outside the United States (as
determined under this subchapter), is of
(ii) the total gross income of such individual or
corporation for the testing period.
(B) Related person
For purposes of this paragraph, the term "related person" has
the meaning given such term by section 954(d)(3), except that -
(i) such section shall be applied by substituting "the
individual or corporation making the payment" for "controlled
foreign corporation" each place it appears, and
(ii) such section shall be applied by substituting "10
percent or more" for "more than 50 percent" each place it
appears.
(d) Special rule for application of subsection (a)(2)(B)
For purposes of subsection (a)(2)(B), if the foreign corporation
has no gross income from any source for the 3-year period (or part
thereof) specified, the requirements of such subsection shall be
applied with respect to the taxable year of such corporation in
which the payment of the dividend is made.
(e) Income from certain railroad rolling stock treated as income
from sources within the United States
(1) General rule
For purposes of subsection (a) and section 862(a), if -
(A) a taxpayer leases railroad rolling stock which is section
1245 property (as defined in section 1245(a)(3)) to a domestic
common carrier by railroad or a corporation which is
controlled, directly or indirectly, by one or more such common
carriers, and
(B) the use under such lease is expected to be use within the
United States,
all amounts includible in gross income by the taxpayer with
respect to such railroad rolling stock (including gain from sale
or other disposition of such railroad rolling stock) shall be
treated as income from sources within the United States. The
requirements of subparagraph (B) of the preceding sentence shall
be treated as satisfied if the only expected use outside the
United States is use by a person (whether or not a United States
person) in Canada or Mexico on a temporary basis which is not
expected to exceed a total of 90 days in any taxable year.
(2) Paragraph (1) not to apply where lessor is a member of
controlled group which includes a railroad
Paragraph (1) shall not apply to a lease between two members of
the same controlled group of corporations (as defined in section
1563) if any member of such group is a domestic common carrier by
railroad or a switching or terminal company all of whose stock is
owned by one or more domestic common carriers by railroad.
(3) Denial of foreign tax credit
No credit shall be allowed under section 901 for any payments
to foreign countries with respect to any amount received by the
taxpayer with respect to railroad rolling stock which is subject
to paragraph (1).
(f) Cross reference
For treatment of interest paid by the branch of a foreign
corporation, see section 884(f).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 275; Pub. L. 86-779, Sec. 3(b),
Sept. 14, 1960, 74 Stat. 998; Pub. L. 87-834, Sec. 9(c), Oct. 16,
1962, 76 Stat. 1001; Pub. L. 89-809, title I, Sec. 102(a)(1)-(3),
(b), (c), Nov. 13, 1966, 80 Stat. 1541-1543; Pub. L. 91-172, title
IV, Sec. 435(a), Dec. 30, 1969, 83 Stat. 625; Pub. L. 92-9, Sec.
3(a)(2), Apr. 1, 1971, 85 Stat. 15; Pub. L. 92-178, title III, Sec.
314(a), title V, Sec. 503, Dec. 10, 1971, 85 Stat. 528, 550; Pub.
L. 93-625, Secs. 8, 9(a), Jan. 3, 1975, 88 Stat. 2116; Pub. L.
94-455, title X, Secs. 1036(a), 1041, 1051(h)(3), title XIX, Secs.
1901(b)(26)(A), (B), (c)(7), 1904(b)(10)(B), 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1633, 1634, 1647, 1798, 1803, 1817, 1834; Pub. L.
95-30, title I, Sec. 102(b)(9), May 23, 1977, 91 Stat. 138; Pub. L.
95-600, title III, Sec. 370(a), title V, Sec. 540(a), Nov. 6, 1978,
92 Stat. 2858, 2887; Pub. L. 96-499, title XI, Sec. 1124, Dec. 5,
1980, 94 Stat. 2690; Pub. L. 96-605, title I, Sec. 104(a), Dec. 28,
1980, 94 Stat. 3523; Pub. L. 98-21, title I, Sec. 121(d), Apr. 20,
1983, 97 Stat. 83; Pub. L. 99-514, title I, Sec. 104(b)(11), title
XII, Secs. 1211(b)(1)(B), 1212(d), 1214(a), (b), (c)(5), 1241(b),
Oct. 22, 1986, 100 Stat. 2105, 2536, 2539, 2541-2543, 2579; Pub. L.
100-203, title X, Sec. 10221(d)(4), Dec. 22, 1987, 101 Stat.
1330-409; Pub. L. 100-647, title I, Secs. 1012(g)(3), (i)(10),
(14)(B), (q)(7), (9), (15), 1018(u)(39), Nov. 10, 1988, 102 Stat.
3501, 3509, 3510, 3524, 3525, 3592; Pub. L. 101-239, title VII,
Secs. 7811(i)(2), 7841(d)(9), Dec. 19, 1989, 103 Stat. 2409, 2428;
Pub. L. 101-508, title XI, Secs. 11801(a)(29), (c)(6)(C), (14),
11813(b)(17), Nov. 5, 1990, 104 Stat. 1388-521, 1388-524, 1388-527,
1388-555; Pub. L. 104-188, title I, Sec. 1702(h)(9), Aug. 20, 1996,
110 Stat. 1874; Pub. L. 105-34, title XI, Sec. 1174(a)(1), Aug. 5,
1997, 111 Stat. 989; Pub. L. 107-16, title VI, Sec. 621(a), June 7,
2001, 115 Stat. 111.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2001 - Subsec. (a)(3). Pub. L. 107-16, Secs. 621(a), 901,
temporarily struck out "except for purposes of sections 79 and 105
and subchapter D," after "In addition," in concluding provisions.
See Effective and Termination Dates of 2001 Amendment note below.
1997 - Subsec. (a)(3). Pub. L. 105-34 inserted concluding
provisions "In addition, except for purposes of sections 79 and 105
and subchapter D, compensation for labor or services performed in
the United States shall not be deemed to be income from sources
within the United States if the labor or services are performed by
a nonresident alien individual in connection with the individual's
temporary presence in the United States as a regular member of the
crew of a foreign vessel engaged in transportation between the
United States and a foreign country or a possession of the United
States."
1996 - Subsec. (e)(1)(A). Pub. L. 104-188 provided that the
amendment made by section 11813(b)(17) of Pub. L. 101-508 shall be
applied as if the material stricken by such amendment included the
closing parenthesis after "section 48(a)(5)". See 1990 Amendment
note below.
1990 - Subsec. (a)(1)(A), (B). Pub. L. 101-508, Sec.
11801(a)(29), (c)(14), inserted "and" at end of subpar. (A),
substituted a period for a comma at end of subpar. (B), and struck
out subpars. (C) and (D) which read as follows:
"(C) interest on a debt obligation which was part of an issue
with respect to which an election has been made under subsection
(c) of section 4912 (as in effect before July 1, 1974) and which,
when issued (or treated as issued under subsection (c)(2) of such
section), had a maturity not exceeding 15 years and, when issued,
was purchased by one or more underwriters with a view to
distribution through resale, but only with respect to interest
attributable to periods after the date of such election, and
"(D) interest on a debt obligation which was part of an issue
which -
"(i) was part of an issue outstanding on April 1, 1971,
"(ii) was guaranteed by a United States person,
"(iii) was treated under chapter 41 as a debt obligation of a
foreign obligor,
"(iv) as of June 30, 1974, had a maturity of not more than 15
years, and
"(v) when issued, was purchased by one or more underwriters for
the purpose of distribution through resale."
Subsec. (e)(1)(A). Pub. L. 101-508, Sec. 11813(b)(17), which
directed the substitution of "which is section 1245 property (as
defined in section 1245(a)(3))" for "which is section 38 property
(or would be section 38 property but for section 48(a)(5)", was
executed by making the substitution for "which is section 38
property (or would be section 38 property but for section
48(a)(5))". See 1996 Amendment note above.
Subsec. (e)(2). Pub. L. 101-508, Sec. 11801(c)(6)(C), substituted
"all of whose stock is owned by one or more domestic common
carriers by railroad" for "referred to in subparagraph (B) of
section 184(d)(1)".
1989 - Subsec. (a)(6). Pub. L. 101-239, Sec. 7811(i)(2),
substituted "865(i)(1)" for "865(h)(1)".
Subsec. (e)(1). Pub. L. 101-239, Sec. 7841(d)(9), substituted
"section 862(a)" for "section 826(a)" in introductory provisions.
1988 - Subsec. (a)(2)(B). Pub. L. 100-647, Sec. 1012(q)(7),
substituted "other than income described in section 884(d)(2)" for
"other than under section 884(d)(2)" in two places.
Subsec. (a)(2)(C). Pub. L. 100-647, Sec. 1012(q)(15), substituted
"section 243(e)" for "section 243(d)".
Subsec. (a)(6). Pub. L. 100-647, Sec. 1018(u)(39), substituted
"inventory property" for "personal property" in heading.
Subsec. (a)(7). Pub. L. 100-647, Sec. 1012(i)(10), amended par.
(7) generally. Prior to amendment, par. (7) read as follows:
"Amounts received as underwriting income (as defined in section
832(b)(3)) derived from the insurance of United States risks (as
defined in section 953(a))."
Subsec. (c)(1)(B). Pub. L. 100-647, Sec. 1012(g)(3), inserted
"or, in the case of a corporation, is attributable to income so
derived by a subsidiary of such corporation" after parenthetical in
cl. (i), struck out "or chain of subsidiaries of such corporation"
after "by a subsidiary" in cl. (ii), and inserted sentence at end
defining "subsidiary".
Subsec. (c)(2)(B)(ii). Pub. L. 100-647, Sec. 1012(i)(14)(B),
amended cl. (ii) generally. Prior to amendment, cl. (ii) read as
follows: "such section shall be applied by substituting '10
percent' for '50 percent' each place it appears."
Subsec. (f). Pub. L. 100-647, Sec. 1012(g)(9), added subsec. (f).
1987 - Subsec. (a)(2). Pub. L. 100-203, Sec. 10221(d)(4)(B),
inserted at end "In the case of any dividend from a 20-percent
owned corporation (as defined in section 243(c)(2)), subparagraph
(B) shall be applied by substituting '100/80th' for '100/70th'."
Subsec. (a)(2)(B). Pub. L. 100-203, Sec. 10221(d)(4)(A), which
directed that subpar. (B) be amended by substituting "100/70th" for
"100/85th", was executed by substituting "100/70th" for "100/85ths"
to reflect the probable intent of Congress.
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1241(b)(1)(A),
substituted "noncorporate residents or domestic corporations" for
"residents, corporate or otherwise," in introductory text.
Subsec. (a)(1)(A). Pub. L. 99-514, Sec. 1214(a)(1), (c)(5)(A),
amended subpar. (B) generally and redesignated it as (A). Prior to
amendment and redesignation, former subpar. (B) read as follows:
"interest received from a resident alien individual or a domestic
corporation, when it is shown to the satisfaction of the Secretary
that less than 20 percent of the gross income from all sources of
such individual or such corporation has been derived from sources
within the United States, as determined under the provisions of
this part, for the 3-year period ending with the close of the
taxable year of such individual or such corporation preceding the
payment of such interest, or for such part of such period as may be
applicable,". Former subpar. (A), which read "interest on amounts
described in subsection (c) received by a nonresident alien
individual or a foreign corporation, if such interest is not
effectively connected with the conduct of a trade or business
within the United States,", was struck out.
Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 1241(b)(1)(B),
redesignated subpar. (D), as previously redesignated and amended by
Sec. 1214(c)(5)(A), (B) of Pub. L. 99-514, as (B) and struck out
former subpar. (B) [previously (C)] which read as follows:
"interest received from a foreign corporation (other than interest
paid or credited by a domestic branch of a foreign corporation, if
such branch is engaged in the commercial banking business), when it
is shown to the satisfaction of the Secretary that less than 50
percent of the gross income from all sources of such foreign
corporation for the 3-year period ending with the close of its
taxable year preceding the payment of such interest (or for such
part of such period as the corporation has been in existence) was
effectively connected with the conduct of a trade or business
within the United States,".
Pub. L. 99-514, Sec. 1214(c)(5)(A), (B), redesignated former
subpar. (F) as (D), substituted in cl. (ii), "subparagraph (B) of
section 871(i)(3)" for "paragraph (2) of subsection (c)", and
redesignated former subpar. (C) as (B). Former subpar. (B)
redesignated (A).
Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 1241(b)(1)(B),
redesignated subpar. (E), as previously redesignated by Sec.
1214(c)(5)(A) of Pub. L. 99-514, as (C) and struck out former
subpar. (C) [previously (D)] which read as follows: "in the case of
interest received from a foreign corporation (other than interest
paid or credited by a domestic branch of a foreign corporation, if
such branch is engaged in the commercial banking business), 50
percent or more of the gross income of which from all sources for
the 3-year period ending with the close of its taxable year
preceding the payment of such interest (or for such part of such
period as the corporation has been in existence) was effectively
connected with the conduct of a trade or business within the United
States, an amount of such interest which bears the same ratio to
such interest as the gross income of such foreign corporation for
such period which was not effectively connected with the conduct of
a trade or business within the United States bears to its gross
income from all sources,".
Pub. L. 99-514, Sec. 1214(c)(5)(A), redesignated subpar. (D) as
(C). Former subpar. (C) redesignated (B).
Subsec. (a)(1)(D). Pub. L. 99-514, Sec. 1214(c)(5)(A),
redesignated subpar. (H) as (F). Pub. L. 99-514, Sec.
1241(b)(1)(B), then redesignated such subpar. (F) as (D). The
original subpar. (D) was redesignated (C) and struck out, and the
original subpar. (F) was redesignated (D), then (B).
Subsec. (a)(1)(E). Pub. L. 99-514, Sec. 1241(b)(1)(B),
redesignated subpar. (E), as previously redesignated by Sec.
1214(c)(5)(A) of Pub. L. 99-514, as (C).
Pub. L. 99-514, Sec. 1214(c)(5)(A), redesignated subpar. (G) as
(E) and struck out former subpar. (E) which read as follows:
"income derived by a foreign central bank of issue from bankers'
acceptances,".
Subsec. (a)(1)(F). Pub. L. 99-514, Secs. 1214(c)(5)(A),
1241(b)(1)(B), redesignated successively former subpar. (F) as (D)
and (B), respectively.
Subsec. (a)(1)(G). Pub. L. 99-514, Secs. 1214(c)(5)(A),
1241(b)(1)(B), redesignated successively former subpar. (G) as (E)
and (C), respectively.
Subsec. (a)(1)(H). Pub. L. 99-514, Secs. 1214(c)(5)(A),
1241(b)(1)(B), redesignated successively former subpar. (H) as (F)
and (D), respectively.
Subsec. (a)(2)(A). Pub. L. 99-514, Sec. 1214(b), amended subpar.
(A) generally. Prior to amendment, subpar. (A) read as follows:
"from a domestic corporation other than a corporation which has an
election in effect under section 936, and other than a corporation
less than 20 percent of whose gross income is shown to the
satisfaction of the Secretary to have been derived from sources
within the United States, as determined under the provisions of
this part, for the 3-year period ending with the close of the
taxable year of such corporation preceding the declaration of such
dividends (or for such part of such period as the corporation has
been in existence), or".
Subsec. (a)(2)(B). Pub. L. 99-514, Sec. 1241(b)(2), substituted
"25 percent" for "50 percent" and inserted "(or treated as
effectively connected other than under section 884(d)(2))" in two
places.
Subsec. (a)(6). Pub. L. 99-514, Sec. 1211(b)(1)(B), substituted
"inventory property (within the meaning of section 865(h)(1))" for
"personal property".
Subsec. (b). Pub. L. 99-514, Sec. 104(b)(11), substituted "the
standard deduction" for "the zero bracket amount".
Subsec. (c). Pub. L. 99-514, Sec. 1214(a)(2), amended subsec. (c)
generally, substituting provisions relating to foreign business
requirements for provisions relating to interest on deposits.
Subsec. (d). Pub. L. 99-514, Sec. 1214(c)(5)(C), amended subsec.
(d) generally, substituting provision for special rule for
application of subsec. (a)(2)(B) for former provision for special
rules for application of subsec. (a), pars. (1)(B) to (1)(D) and
(2)(B), pars. (1) and (2) thereof relating to new entities and
transition rule provisions.
Subsecs. (e), (f). Pub. L. 99-514, Sec. 1212(d), redesignated
subsec. (f) as (e) and struck out former subsec. (e) relating to
treatment of income from certain leased aircraft, vessels, and
spacecraft as income from sources within the United States.
1983 - Subsec. (a)(8). Pub. L. 98-21 added par. (8).
1980 - Subsec. (a)(5). Pub. L. 96-499 substituted "Disposition of
United States real property interest" for "Sale or exchange of real
property" in heading and "disposition of a United States real
property interest (as defined in section 897(c))" for "sale or
exchange of real property located in the United States" in text.
Subsec. (e). Pub. L. 96-605 substituted provision directing that
income from certain leased aircraft, vessels, and spacecraft be
treated as income from sources within the United States for
provision permitting the taxpayer to elect to treat income from
certain aircraft and vessels as income from sources within the
United States and prescribing the manner of revocating such an
election.
1978 - Subsec. (a)(1)(F). Pub. L. 95-600, Sec. 540(a), designated
existing provisions as cl. (i) and added cl. (ii).
Subsec. (f). Pub. L. 95-600, Sec. 370(a), added subsec. (f).
1977 - Subsec. (b). Pub. L. 95-30 provided that, in the case of
an individual who does not itemize deductions, an amount equal to
the zero bracket amount shall be considered a deduction which
cannot definitely be allocated to some item or class of gross
income.
1976 - Subsec. (a)(1). Pub. L. 94-455, Secs. 1901(c)(7),
1904(b)(10)(B), struck out ", any Territory, any political
subdivision of a Territory," after "United States" in provisions
preceding subpar. (A) and, in subpar. (G), substituted "subsection
(c) of section 4912 (as in effect before July 1, 1974)" for
"section 4912(c)" and "subsection (c)(2) of such section" for
"section 4912(c)(2)".
Subsec. (a)(2)(A). Pub. L. 94-455, Secs. 1051(h)(3),
1906(b)(13)(A), substituted "other than a corporation which has an
election in effect under section 936" for "other than a corporation
entitled to the benefits of section 931" and struck out "or his
delegate" after "Secretary".
Subsec. (a)(2)(D). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (a)(5), (6). Pub. L. 94-455, Sec. 1901(b)(26)(A),
substituted "sale or exchange" for "sale" in headings and text.
Subsec. (a)(7). Pub. L. 94-455, Sec. 1036(a), added par. (7).
Subsec. (c)(3). Pub. L. 94-455, Sec. 1041, struck out provision
that subsecs. (a)(1)(A) and (c) would cease to apply effective with
respect to amounts paid or credited after Dec. 31, 1976.
Subsec. (e)(1). Pub. L. 94-455, Sec. 1901(b)(26)(B), substituted
"sale, exchange, or other disposition" for "sale or other
disposition".
Subsecs. (e)(2), (3). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
1975 - Subsec. (a)(1)(H). Pub. L. 93-625, Sec. 9(a), added
subpar. (H).
Subsec. (c)(3). Pub. L. 93-625, Sec. 8, substituted "1976" for
"1975".
1971 - Subsec. (a)(1)(G). Pub. L. 92-9 added subpar. (G).
Subsec. (a)(2)(D). Pub. L. 92-178, Sec. 503, added subpar. (D).
Subsec. (e). Pub. L. 92-178, Sec. 314(a), added subsec. (e).
1969 - Subsec. (a)(1)(C), (D). Pub. L. 91-172, Sec. 435(a)(1),
struck out "after December 31, 1972," after "interest paid or
credited" in parenthetical after "interest received from a foreign
corporation".
Subsec. (c)(3). Pub. L. 91-172, Sec. 435(a)(2), substituted
"1975" for "1972".
1966 - Subsec. (a)(1)(A). Pub. L. 89-809, Sec. 102(a)(1)(A),
substituted "interest on amounts described in subsection (c)
received by a nonresident alien individual or a foreign
corporation, if such interest is not effectively connected with the
conduct of a trade or business within the United States" for
"interest on deposits with persons carrying on the banking business
paid to persons not engaged in business within the United States".
Subsec. (a)(1)(B). Pub. L. 89-809, Sec. 102(a)(2), struck out
interest received from a resident foreign corporation, and
substituted "gross income from all sources of such individual or
such corporation" for "gross income of such resident payor or
domestic corporation", and "taxable year of such individual or such
corporation" for "taxable year of such payor".
Subsec. (a)(1)(C) to (F). Pub. L. 89-809, Sec. 102(a)(2), added
subpars. (C), (D), and (F), and redesignated former subpar. (C) as
(E).
Subsec. (a)(2)(B). Pub. L. 89-809, Sec. 102(b), substituted "50
percent of the gross income from all sources" for "50 percent of
the gross income", "effectively connected with the conduct of a
trade or business within the United States" for "derived from
sources within the United States as determined from the provisions
of this part", and "ratio to such dividends as the gross income of
the corporation for such period which was effectively connected
with the conduct of a trade or business within the United States
bears to its gross income from all sources" for "ratio to such
dividends as the gross income of the corporation for such period
derived from sources within the United States bears to its gross
income from all sources" and inserted "(other than dividends for
which a deduction is allowable under section 245(b))" after
"dividends" and "(and only to the extent)" after "extent".
Subsec. (a)(3)(C)(ii). Pub. L. 89-809, Sec. 102(c), inserted "an
individual who is a citizen or resident of the United States, a
domestic partnership, or" before "a domestic corporation" and
"individual, partnership, or" after "United States by such".
Subsecs. (c), (d). Pub. L. 89-809, Sec. 102(a)(1)(B), (3), added
subsecs. (c) and (d).
1962 - Subsec. (a)(2)(B). Pub. L. 87-834 substituted "to the
extent exceeding the amount which is 100/85ths of the amount of the
deduction allowable under section 245 in respect of such dividends"
for "to the extent exceeding the amount of the deduction allowable
under section 245 in respect of such dividends."
1960 - Subsec. (a)(2)(C). Pub. L. 86-779 added subpar. (C).
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VI, Sec. 621(b), June 7, 2001, 115 Stat.
111, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to remuneration for services performed in
plan years beginning after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to remuneration for
services performed in taxable years beginning after Dec. 31, 1997,
see section 1174(c) of Pub. L. 105-34, set out as a note under
section 7701 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(b)(17) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 29 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7811(i)(2) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L.
100-647, to which such amendment relates, see section 7817 of Pub.
L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dividends received or
accrued after Dec. 31, 1987, in taxable years ending after such
date, see section 10221(e)(1) of Pub. L. 100-203, set out as a note
under section 243 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(11) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1211(b)(1)(B) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Amendment by section 1212(d) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with special rules for
certain leased property and for certain ships leased by United
States Navy, see section 1212(f) of Pub. L. 99-514, set out as a
note under section 863 of this title.
Section 1214(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(g)(1)(A), (2), Nov. 10, 1988, 102 Stat. 3500,
3501, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 871, 881, 1441, and 6049 of this title]
shall apply to payments made in a taxable year of the payor
beginning after December 31, 1986.
"(2) Treatment of certain interest. -
"(A) In general. - The amendments made by this section shall
not apply to any interest paid or accrued on any obligation
outstanding on December 31, 1985. The preceding sentence shall
not apply to any interest paid pursuant to any extension or
renewal of such an obligation agreed to after December 31, 1985.
"(B) Special rule for related payee. - If the payee of any
interest to which subparagraph (A) applies is related (within the
meaning of section 904(d)(2)(H) of the Internal Revenue Code of
1986) to the payor, such interest shall be treated for purposes
of section 904 of such Code as if the payor were a controlled
foreign corporation (within the meaning of section 957(a) of such
Code).
"(3) Transitional rule. -
"(A) Years before 1988. - In applying the amendments made by
this section to any payment made by a corporation in a taxable
year of such corporation beginning before January 1, 1988, the
requirements of clause (ii) of section 861(c)(1)(B) of the
Internal Revenue Code of 1986 (relating to active business
requirements), as amended by this section, shall not apply to
gross income of such corporation for taxable years beginning
before January 1, 1987.
"(B) Years after 1987. - In applying the amendments made by
this section to any payment made by a corporation in a taxable
year of such corporation beginning after December 31, 1987, the
testing period for purposes of section 861(c) of such Code (as so
amended) shall not include any taxable year beginning before
January 1, 1987.
"(4) Certain dividends. -
"(A) In general. - The amendments made by this section shall
not apply to any dividend paid before January 1, 1991, by a
qualified corporation with respect to stock which was outstanding
on May 31, 1985.
"(B) Qualified corporation. - For purposes of subparagraph (A),
the term 'qualified corporation' means any business systems
corporation which -
"(i) was incorporated in Delaware in February, 1979,
"(ii) is headquartered in Garden City, New York, and
"(iii) the parent corporation of which is a resident of
Sweden."
[Section 1012(g)(1)(B) of Pub. L. 100-647 provided that: "A
taxpayer may elect not to have the amendment made by subparagraph
(A) [amending section 1214(d)(1) of Pub. L. 99-514, set out above]
apply and to have section 1214(d)(1) of the Reform Act [section
1214(d)(1) of Pub. L. 99-514, set out above] apply as in effect
before such amendment. Such election shall be made at such time and
in such manner as the Secretary of the Treasury or his delegate may
prescribe."]
Amendment by section 1241(b) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1241(e) of
Pub. L. 99-514, set out as an Effective Date note under section 884
of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 98-21 applicable to benefits received after
Dec. 31, 1983, in taxable years ending after such date, except for
any portion of a lump-sum payment of social security benefits
received after Dec. 31, 1983, if the generally applicable payment
date for such portion was before Jan. 1, 1984, see section 121(g)
of Pub. L. 98-21, set out as an Effective Date note under section
86 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 104(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
property first leased after the date of the enactment of this Act
[Dec. 28, 1980]."
Amendment by Pub. L. 96-499 applicable to dispositions after June
18, 1980, see section 1125(a) of Pub. L. 96-499, set out as an
Effective Date note under section 897 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 370(b) of Pub. L. 95-600 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to all railroad rolling stock placed in
service with respect to the taxpayer after the date of the
enactment of this Act [Nov. 6, 1978].
"(2) Election to extend section 861(f) to railroad rolling stock
placed in service before date of enactment.
"(A) In general. - At the election of the taxpayer, the
amendment made by subsection (a) shall also apply, for taxable
years beginning after the date of the enactment of this Act, to
all railroad rolling stock placed in service with respect to the
taxpayer on or before such date of enactment. Such an election
may not be revoked except with the consent of the Secretary of
the Treasury or his delegate.
"(B) Manner and time of election and revocation. - An election
under subparagraph (A), and any revocation of such an election,
shall be made in such manner and at such time as the Secretary of
the Treasury or his delegate may by regulations prescribe."
Section 540(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Nov. 6, 1978]."
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1036(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and section 862 of this
title] shall apply to taxable years beginning after December 31,
1976."
For effective date of amendment by section 1051(h)(3) of Pub. L.
94-455, see section 1051(i)(1) of Pub. L. 94-455, set out as a note
under section 27 of this title.
Amendment by section 1901(b)(26)(A), (B), (c)(7) of Pub. L.
94-455 effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as a note under
section 2 of this title.
Amendment by section 1904(b)(10)(B) of Pub. L. 94-455 effective
on first day of first month which begins more than 90 days after
date of enactment of this Act [Oct. 4, 1976], see section 1904(d)
of Pub. L. 94-455, set out as a note under section 4041 of this
title.
EFFECTIVE DATE OF 1975 AMENDMENT
Section 9(c) of Pub. L. 93-625 provided that: "The amendment made
by subsection (a) [amending this section] applies to interest paid
after the date of enactment of this Act [Jan. 3, 1975], and the
amendment made by subsection (b) [amending section 2104 of this
title] applies with respect to estates of decedents dying after
such date."
EFFECTIVE DATE OF 1971 AMENDMENTS
Section 3(a)(3) of Pub. L. 92-9 provided that: "The amendments
made by this subsection [amending this section and section 4912 of
this title] shall take effect on the date of the enactment of this
Act [Apr. 1, 1971]."
Section 314(c) of Pub. L. 92-178 provided that: "The amendments
made by this section [amending this section and section 862 of this
title] shall apply to taxable years ending after August 15, 1971,
but only with respect to leases entered into after such date."
Amendment by section 503 of Pub. L. 92-178 applicable with
respect to taxable years ending after Dec. 31, 1971, except that a
corporation may not be a DISC for any taxable year beginning before
Jan. 1, 1972, see section 507 of Pub. L. 92-178, set out as an
Effective Date note under section 991 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 435(a)(1) of Pub. L. 91-172 provided that the amendment
made by that section is effective with respect to amounts paid or
credited after Dec. 31, 1969.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 102(e) of Pub. L. 89-809, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) The amendments made by subsections (a), (c), and (d)
[amending this section and sections 864 and 895 of this title]
shall apply with respect to taxable years beginning after December
31, 1966; except that in applying section 864(c)(4)(B)(iii) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by
subsection (d)) with respect to a binding contract entered into on
or before February 24, 1966, activities in the United States on or
before such date in negotiating or carrying out such contract shall
not be taken into account.
"(2) The amendments made by subsection (b) [amending this
section] shall apply with respect to amounts received after
December 31, 1966."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable in respect of any
distribution received by a domestic corporation after Dec. 31,
1964, and in respect of any distribution received by a domestic
corporation before Jan. 1, 1965, in a taxable year of such
corporation beginning after Dec. 31, 1962, but only to the extent
that such distribution is made out of the accumulated profits of a
foreign corporation for a taxable year (of such foreign
corporation) beginning after Dec. 31, 1962, see section 9(e) of
Pub. L. 87-834, set out as a note under section 902 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable to dividends received
after Dec. 31, 1959, in taxable years ending after such date, see
section 3(c) of Pub. L. 86-779, set out as a note under section 243
of this title.
SHORT TITLE OF 1971 AMENDMENT
Section 1(a) of Pub. L. 92-9 provided that: "This Act [amending
this section and sections 4911, 4912, 4914 to 4916, 4919 to 4921,
6651, 6680, and 6681 of this title and enacting provisions set out
as notes under this section and sections 6680 and 6681 of this
title] may be cited as the 'Interest Equalization Tax Extension Act
of 1971'."
SHORT TITLE OF 1966 AMENDMENT
Section 101 of title I of Pub. L. 89-809 provided that: "This
title [enacting sections 877, 896, 906, 981, 2107, 2108, and 6683
of this title, amending this section and sections 1, 11, 116, 154,
245, 301, 512, 542, 543, 545, 819, 821, 822, 831, 832, 841, 842,
864, 871, 872, 873, 874, 875, 881, 882, 884, 894, 895, 901, 904,
911, 931, 932, 952, 953, 1248, 1249, 1441, 1442, 1461, 2014, 2101,
2102, 2104, 2105, 2106, 2501, 2511, 3401, 6015, 6016, 6018, 6501,
6513, and 7701 of this title, redesignating former section 877 as
878, repealing section 1493, and enacting provisions set out as
notes under this section and sections 11, 871, 874, 894, 901, 904,
931, 2101, 2501, and 6501 of this title] may be cited as the
'Foreign Investors Tax Act of 1966'."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
DIVIDENDS RECEIVED OR ACCRUED DURING 1987
Subsec. (a)(2)(B) of this section to be applied by substituting
"100/80ths" for the fraction specified therein with regard to
dividends received or accrued during 1987, see section
1006(b)(1)(B) of Pub. L. 100-647 set out as a note under section
245 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
Section 1012(aa)(2)-(4) of title I of Pub. L. 100-647 provided
that:
"(2) Certain amendments to apply notwithstanding treaties. - The
following amendments made by the Reform Act [Pub. L. 99-514] shall
apply notwithstanding any treaty obligation of the United States in
effect on the date of the enactment of the Reform Act [Oct. 22,
1986]:
"(A) The amendments made by section 1201 of the Reform Act
[amending sections 864, 904, and 954 of this title].
"(B) The amendments made by title VII of the Reform Act
[enacting sections 53 and 55 to 59 of this title and amending
sections 5, 12, 26, 28, 29, 38, 48, 173, 174, 263, 381, 443, 703,
882, 897, 904, 936, 1016, 1363, 1366, 1561, 6154, 6425, and 6655
of this title] to the extent such amendments relate to the
alternative minimum tax foreign tax credit.
"(3) Certain amendments not to apply to the extent inconsistent
with treaties. - The following amendments made by the Reform Act
[Pub. L. 99-514] shall not apply to the extent the application of
such amendments would be contrary to any treaty obligation of the
United States in effect on the date of the enactment of the Reform
Act [Oct. 22, 1986]:
"(A) The amendments made by section 1211 of the Reform Act
[enacting section 865 of this title and amending this section and
sections 862 to 864, 871, 881, and 904 of this title] to the
extent -
"(i) such amendments apply in the case of an individual
treated as a resident of a foreign country under a treaty
obligation of the United States as so in effect, or
"(ii) such amendments relate to income of a nonresident from
the sale or exchange of inventory property which would
otherwise be sourced under section 865(e)(2) of the 1986 Code.
"(B) The amendments made by section 1212(a) of the Reform Act
[amending section 863 of this title]; except for purposes of
determining the amount of the foreign tax credit.
"(C) The amendments made by subsections (b) and (c) of section
1212 of the Reform Act [enacting section 887 of this title and
amending sections 872 and 883 of this title].
"(D) The amendments made by section 1214 of the Reform Act
[amending this section and sections 871, 881, 1441, and 6049 of
this title]; except for purposes of determining the amount of the
foreign tax credit.
"(E) The amendment made by section 1241(a) of the Reform Act
[enacting section 884 of this title and renumbering former
section 884 as 885] to the extent that, under a treaty obligation
of the United States, interest described in section 884(f)(1)(A)
of the 1986 Code (as added by such amendment) which is in excess
of amounts deducted would be treated as other than United States
source.
"(F) The amendment made by section 1241(b)(2)(A) of the Reform
Act [amending this section].
"(G) The amendment made by section 1241(a) of the Reform Act
[enacting section 884 of this title and renumbering former
section 884 as 885] to the extent such amendment relates to
section 884(f)(1)(B) of the 1986 Code.
"(H) The amendments made by section 1242 of the Reform Act
[amending section 864 of this title] to the extent they relate to
paragraph (7) of section 864(c) of the 1986 Code.
"(I) The amendment made by section 1247(a) of the Reform Act
[amending section 892 of this title].
"(J) The amendments made by section 123 of the Reform Act
[amending sections 74, 117, 1441, and 7871 of this title].
"(4) Treatment of technical corrections. - For purposes of
paragraphs (2) and (3), any amendment made by this title [see
Tables for classification] shall be treated as if it had been
included in the provision of the Reform Act [Pub. L. 99-514] to
which such amendment relates."
QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES; ALLOCATION AND
APPORTIONMENT; DEFINITIONS; SPECIAL RULES; EFFECTIVE DATES
Section 4009 of Pub. L. 100-647 provided that:
"(a) General Rule. - For purposes of sections 861(b), 862(b), and
863(b) of the 1986 Code, qualified research and experimental
expenditures shall be allocated and apportioned as follows:
"(1) Any qualified research and experimental expenditures
expended solely to meet legal requirements imposed by a political
entity with respect to the improvement or marketing of specific
products or processes for purposes not reasonably expected to
generate gross income (beyond de minimis amounts) outside the
jurisdiction of the political entity shall be allocated only to
gross income from sources within such jurisdiction.
"(2) In the case of any qualified research and experimental
expenditures (not allocated under paragraph (1)) to the extent -
"(A) that such expenditures are attributable to activities
conducted in the United States, 64 percent of such expenditures
shall be allocated and apportioned to income from sources
within the United States and deducted from such income in
determining the amount of taxable income from sources within
the United States, and
"(B) that such expenditures are attributable to activities
conducted outside the United States, 64 percent of such
expenditures shall be allocated and apportioned to income from
sources outside the United States and deducted from such income
in determining the amount of taxable income from sources
outside the United States.
"(3) The remaining portion of qualified research and
experimental expenditures (not allocated under paragraphs (1) and
(2)) shall be apportioned, at the annual election of the
taxpayer, on the basis of gross sales or gross income, except
that, if the taxpayer elects to apportion on the basis of gross
income, the amount apportioned to income from sources outside the
United States shall be at least 30 percent of the amount which
would be so apportioned on the basis of gross sales.
"(b) Qualified Research and Experimental Expenditures. - For
purposes of this section, the term 'qualified research and
experimental expenditures' means amounts which are research and
experimental expenditures within the meaning of section 174 of the
1986 Code. For purposes of this subsection, rules similar to the
rules of subsection (c) of section 174 of the 1986 Code shall
apply.
"(c) Special Rules for Expenditures Attributable to Activities
Conducted in Space, Etc. -
"(1) In general. - Any qualified research and experimental
expenditures described in paragraph (2) -
"(A) if incurred by a United States person, shall be
allocated and apportioned under this section in the same manner
as if they were attributable to activities conducted in the
United States, and
"(B) if incurred by a person other than a United States
person, shall be allocated and apportioned under this section
in the same manner as if they were attributable to activities
conducted outside the United States.
"(2) Description of expenditures. - For purposes of paragraph
(1), qualified research and experimental expenditures are
described in this paragraph if such expenditures are attributable
to activities conducted -
"(A) in space,
"(B) on or under water not within the jurisdiction (as
recognized by the United States) of a foreign country,
possession of the United States, or the United States, or
"(C) in Antarctica.
"(d) Affiliated Group. -
"(1) Except as provided in paragraph (2), the allocation and
apportionment required by subsection (a) shall be determined as
if all members of the affiliated group (as defined in subsection
(e)(5) of section 864 of the 1986 Code) were a single
corporation.
"(2) For purposes of the allocation and apportionment required
by subsection (a) -
"(A) sales and gross income from products produced in whole
or in part in a possession by an electing corporation (within
the meaning of section 936(h)(5)(E) of the 1986 Code); and
"(B) dividends from an electing corporation,
shall not be taken into account, except that this paragraph shall
not apply to sales of (and gross income and dividends
attributable to sales of) products with respect to which an
election under section 936(h)(5)(F) of the 1986 Code is not in
effect.
"(3) The qualified research and experimental expenditures taken
into account for purposes of subsection (a) shall be adjusted to
reflect the amount of such expenditures included in computing the
cost-sharing amount (determined under section 936(h)(5)(C)(i)(I)
of the 1986 Code).
"(4) The Secretary of the Treasury or his delegate may
prescribe such regulations as may be necessary to carry out the
purposes of this subsection, including regulations providing for
the source of gross income and the allocation and apportionment
of deductions to take into account the adjustments required by
paragraph (3).
"(5) Paragraph (6) of section 864(e) of the 1986 Code shall not
apply to qualified research and experimental expenditures.
"(e) Years to Which Section Applies. -
"(1) In general. - Except as provided in this subsection, this
section shall apply to the taxpayer's 1st taxable year beginning
after August 1, 1987.
"(2) Reduction in amounts to which section applies. -
Notwithstanding paragraph (1), this section shall only apply to
that portion of the qualified research and experimental
expenditures for the taxable year referred to in paragraph (1)
which bears the same ratio to the total amount of such
expenditures as -
"(A) the lesser of 4 months or the number of months in the
taxable year, bears to
"(B) the number of months in the taxable year."
1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF
RESEARCH AND EXPERIMENTAL EXPENDITURES
Section 1216 of Pub. L. 99-514 provided that:
"(a) General Rule. - For purposes of section 861(b), section
862(b), and section 863(b) of the Internal Revenue Code of 1954
[now 1986], notwithstanding section 864(e) of such Code -
"(1) 50 percent of all amounts allowable as a deduction for
qualified research and experimental expenditures shall be
apportioned to income from sources within the United States and
deducted from such income in determining the amount of taxable
income from sources within the United States, and
"(2) the remaining portion of such amounts shall be apportioned
on the basis of gross sales or gross income.
The preceding sentence shall not apply to any expenditures
described in section 1.861-8(e)(3)(i)(B) of the Income Tax
Regulations.
"(b) Qualified Research and Experimental Expenditures. - For
purposes of this section -
"(1) In general. - The term 'qualified research and
experimental expenditures' means amounts -
"(A) which are research and experimental expenditures within
the meaning of section 174 of such Code, and
"(B) which are attributable to activities conducted in the
United States.
"(2) Treatment of depreciation, etc. - Rules similar to the
rules of section 174(c) of such Code shall apply.
"(c) Effective Date. - This section shall apply to taxable years
beginning after August 1, 1986, and on or before August 1, 1987."
ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL
EXPENDITURES
Pub. L. 98-369, div. A, title I, Sec. 126, July 18, 1984, 98
Stat. 648, as amended by Pub. L. 99-272, title XIII, Sec. 13211,
Apr. 7, 1986, 100 Stat. 324; Pub. L. 99-514, Sec. 2, Oct. 22, 1986,
100 Stat. 2095, provided that:
"(a) In General. - For purposes of section 861(b), section
862(b), and section 863(b) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], all amounts allowable as a deduction for
qualified research and experimental expenditures shall be allocated
to income from sources within the United States and deducted from
such income in determining the amount of taxable income from
sources within the United States.
"(b) Qualified Research and Experimental Expenditures. - For
purposes of this section -
"(1) In general. - The term 'qualified research and
experimental expenditures' means amounts -
"(A) which are research and experimental expenditures within
the meaning of section 174 of such Code, and
"(B) which are attributable to activities conducted in the
United States.
"(2) Treatment of depreciation, etc. - Rules similar to the
rules of subsection (c) of section 174 of such Code shall apply.
"(c) Effective Dates. -
"(1) In general. - This section shall apply to taxable years
beginning after August 13, 1983, and on or before August 1, 1986.
"(2) Special rule. - If the taxpayer's 4th taxable year
beginning after August 13, 1981, is not described in paragraph
(1), this section shall apply also to such 4th taxable year."
CONFORMITY OF AMENDMENTS MADE BY FOREIGN INVESTORS TAX ACT OF 1966
WITH TREATY OBLIGATIONS OF THE UNITED STATES
Section 110 of title I of Pub. L. 89-809 provided that: "No
amendment made by this title [see Short Title note above] shall
apply in any case where its application would be contrary to any
treaty obligation of the United States. For purposes of the
preceding sentence, the extension of a benefit provided by any
amendment made by this title shall not be deemed to be contrary to
a treaty obligation of the United States."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 79, 105, 410, 414, 505,
638, 818, 862, 863, 864, 865, 871, 884, 904, 2104, 4948, 4980B of
this title.
-End-
-CITE-
26 USC Sec. 862 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 862. Income from sources without the United States
-STATUTE-
(a) Gross income from sources without United States
The following items of gross income shall be treated as income
from sources without the United States:
(1) interest other than that derived from sources within the
United States as provided in section 861(a)(1);
(2) dividends other than those derived from sources within the
United States as provided in section 861(a)(2);
(3) compensation for labor or personal services performed
without the United States;
(4) rentals or royalties from property located without the
United States or from any interest in such property, including
rentals or royalties for the use of or for the privilege of using
without the United States patents, copyrights, secret processes
and formulas, good will, trade-marks, trade brands, franchises,
and other like properties;
(5) gains, profits, and income from the sale or exchange of
real property located without the United States;
(6) gains, profits, and income derived from the purchase of
inventory property (within the meaning of section 865(i)(1))
within the United States and its sale or exchange without the
United States;
(7) underwriting income other than that derived from sources
within the United States as provided in section 861(a)(7); and
(8) gains, profits, and income from the disposition of a United
States real property interest (as defined in section 897(c)) when
the real property is located in the Virgin Islands.
(b) Taxable income from sources without United States
From the items of gross income specified in subsection (a) there
shall be deducted the expenses, losses, and other deductions
properly apportioned or allocated thereto, and a ratable part of
any expenses, losses, or other deductions which cannot definitely
be allocated to some item or class of gross income. The remainder,
if any, shall be treated in full as taxable income from sources
without the United States. In the case of an individual who does
not itemize deductions, an amount equal to the standard deduction
shall be considered a deduction which cannot definitely be
allocated to some item or class of gross income.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 276; Pub. L. 92-178, title III,
Sec. 314(b), Dec. 10, 1971, 85 Stat. 528; Pub. L. 94-455, title X,
Sec. 1036(b), title XIX, Sec. 1901(b)(26)(C), Oct. 4, 1976, 90
Stat. 1633, 1798; Pub. L. 95-30, title I, Sec. 102(b)(10), May 23,
1977, 91 Stat. 138; Pub. L. 97-34, title VIII, Sec. 831(a)(2), Aug.
13, 1981, 95 Stat. 352; Pub. L. 99-514, title I, Sec. 104(b)(12),
title XII, Sec. 1211(b)(1)(C), Oct. 22, 1986, 100 Stat. 2105, 2536;
Pub. L. 100-647, title I, Sec. 1012(e)(4), Nov. 10, 1988, 102 Stat.
3500; Pub. L. 101-239, title VII, Sec. 7811(i)(2), Dec. 19, 1989,
103 Stat. 2409.)
-MISC1-
AMENDMENTS
1989 - Subsec. (a)(6). Pub. L. 101-239 substituted "865(i)(1)"
for "865(h)(1)".
1988 - Subsec. (c). Pub. L. 100-647 repealed subsec. (c) which
read as follows:
"(c) Cross reference. - For source of amounts attributable to
certain aircraft and vessels, see section 861(e)."
1986 - Subsec. (a)(6). Pub. L. 99-514, Sec. 1211(b)(1)(C),
substituted "inventory property (within the meaning of section
865(h)(1))" for "personal property".
Subsec. (b). Pub. L. 99-514, Sec. 104(b)(12), substituted "the
standard deduction" for "the zero bracket amount".
1981 - Subsec. (a)(8). Pub. L. 97-34 added par. (8).
1977 - Subsec. (b). Pub. L. 95-30 provided that, in the case of
an individual who does not itemize deductions, an amount equal to
the zero bracket amount shall be considered a deduction which
cannot definitely be allocated to some item or class of gross
income.
1976 - Subsec. (a)(5), (6). Pub. L. 94-455, Sec. 1901(b)(26)(C),
inserted "or exchange" after "sale".
Subsec. (a)(7). Pub. L. 94-455, Sec. 1036(b), added par. (7).
1971 - Subsec. (c). Pub. L. 92-178 added subsec. (c).
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(12) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1211(b)(1)(C) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to dispositions after June
18, 1980, in taxable years ending after such date, see section
831(i) of Pub. L. 97-34, set out as a note under section 897 of
this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1036(b) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1976, see section 1036(c) of
Pub. L. 94-455, set out as a note under section 861 of this title.
Amendment by section 1901(b)(26)(C) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by Pub. L. 92-178 applicable to taxable years ending
after Aug. 15, 1971, but only with respect to leases entered into
after such date, see section 314(c) of Pub. L. 92-178, set out as a
note under section 861 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1211(b)(1)(C) of Pub.
L. 99-514 to the extent application of such amendment would be
contrary to any treaty obligation of the United States in effect on
Oct. 22, 1986, with provision that for such purposes any amendment
by title I of Pub. L. 100-647 be treated as if it had been included
in the provision of Pub. L. 99-514 to which such amendment relates,
see section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES; ALLOCATION AND
APPORTIONMENT; DEFINITIONS; SPECIAL RULES; EFFECTIVE DATES
For allocation and apportionment of qualified research and
experimental expenditures for purposes of sections 861 to 863 of
this title, see section 4009 of Pub. L. 100-647, set out as a note
under section 861 of this title.
1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF
RESEARCH AND EXPERIMENTAL EXPENDITURES
For rule governing allocation under subsec. (b) of this section
of amounts allowable as a deduction for qualified research and
experimental expenditures during taxable years beginning after Aug.
1, 1986, and on or before Aug. 1, 1987, see section 1216 of Pub. L.
99-514, set out as a note under section 861 of this title.
ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL
EXPENDITURES
For purposes of subsec. (b) of this section, all amounts
allowable as a deduction for qualified research and experimental
expenditures are to be allocated to income from sources within the
United States and deducted from such income in determining the
amount of taxable income from sources within the United States for
taxable years beginning after Aug. 13, 1983, and on or before Aug.
1, 1986, see section 126 of Pub. L. 98-369, set out as a note under
section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 638, 818, 861, 863, 864,
865 of this title.
-End-
-CITE-
26 USC Sec. 863 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 863. Special rules for determining source
-STATUTE-
(a) Allocation under regulations
Items of gross income, expenses, losses, and deductions, other
than those specified in sections 861(a) and 862(a), shall be
allocated or apportioned to sources within or without the United
States, under regulations prescribed by the Secretary. Where items
of gross income are separately allocated to sources within the
United States, there shall be deducted (for the purpose of
computing the taxable income therefrom) the expenses, losses, and
other deductions properly apportioned or allocated thereto and a
ratable part of other expenses, losses, or other deductions which
cannot definitely be allocated to some item or class of gross
income. The remainder, if any, shall be included in full as taxable
income from sources within the United States.
(b) Income partly from within and partly from without the United
States
In the case of gross income derived from sources partly within
and partly without the United States, the taxable income may first
be computed by deducting the expenses, losses, or other deductions
apportioned or allocated thereto and a ratable part of any
expenses, losses, or other deductions which cannot definitely be
allocated to some item or class of gross income; and the portion of
such taxable income attributable to sources within the United
States may be determined by processes or formulas of general
apportionment prescribed by the Secretary. Gains, profits, and
income -
(1) from services rendered partly within and partly without the
United States,
(2) from the sale or exchange of inventory property (within the
meaning of section 865(i)(1)) produced (in whole or in part) by
the taxpayer within and sold or exchanged without the United
States, or produced (in whole or in part) by the taxpayer without
and sold or exchanged within the United States, or
(3) derived from the purchase of inventory property (within the
meaning of section 865(i)(1)) within a possession of the United
States and its sale or exchange within the United States,
shall be treated as derived partly from sources within and partly
from sources without the United States.
(c) Source rule for certain transportation income
(1) Transportation beginning and ending in the United States
All transportation income attributable to transportation which
begins and ends in the United States shall be treated as derived
from sources within the United States.
(2) Other transportation having United States connection
(A) In general
50 percent of all transportation income attributable to
transportation which -
(i) is not described in paragraph (1), and
(ii) begins or ends in the United States,
shall be treated as from sources in the United States.
(B) Special rule for personal service income
Subparagraph (A) shall not apply to any transportation income
which is income derived from personal services performed by the
taxpayer, unless such income is attributable to transportation
which -
(i) begins in the United States and ends in a possession of
the United States, or
(ii) begins in a possession of the United States and ends
in the United States.
In the case of transportation income derived from, or in
connection with, a vessel, this subparagraph shall only apply
if the taxpayer is a citizen or resident alien.
(3) Transportation income
For purposes of this subsection, the term "transportation
income" means any income derived from, or in connection with -
(A) the use (or hiring or leasing for use) of a vessel or
aircraft, or
(B) the performance of services directly related to the use
of a vessel or aircraft.
For purposes of the preceding sentence, the term "vessel or
aircraft" includes any container used in connection with a vessel
or aircraft.
(d) Source rules for space and certain ocean activities
(1) In general
Except as provided in regulations, any income derived from a
space or ocean activity -
(A) if derived by a United States person, shall be sourced in
the United States, and
(B) if derived by a person other than a United States person,
shall be sourced outside the United States.
(2) Space or ocean activity
For purposes of paragraph (1) -
(A) In general
The term "space or ocean activity" means -
(i) any activity conducted in space, and
(ii) any activity conducted on or under water not within
the jurisdiction (as recognized by the United States) of a
foreign country, possession of the United States, or the
United States.
Such term includes any activity conducted in Antarctica.
(B) Exception for certain activities
The term "space or ocean activity" shall not include -
(i) any activity giving rise to transportation income (as
defined in section 863(c)),
(ii) any activity giving rise to international
communications income (as defined in subsection (e)(2)), and
(iii) any activity with respect to mines, oil and gas
wells, or other natural deposits to the extent within the
United States or any foreign country or possession of the
United States (as defined in section 638).
For purposes of applying section 638, the jurisdiction of any
foreign country shall not include any jurisdiction not
recognized by the United States.
(e) International communications income
(1) Source rules
(A) United States persons
In the case of any United States person, 50 percent of any
international communications income shall be sourced in the
United States and 50 percent of such income shall be sourced
outside the United States.
(B) Foreign persons
(i) In general
Except as provided in regulations or clause (ii), in the
case of any person other than a United States person, any
international communications income shall be sourced outside
the United States.
(ii) Special rule for income attributable to office or fixed
place of business in the United States
In the case of any person (other than a United States
person) who maintains an office or other fixed place of
business in the United States, any international
communications income attributable to such office or other
fixed place of business shall be sourced in the United
States.
(2) Definition
For purposes of this section, the term "international
communications income" includes all income derived from the
transmission of communications or data from the United States to
any foreign country (or possession of the United States) or from
any foreign country (or possession of the United States) to the
United States.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 277; Pub. L. 94-455, title XIX,
Secs. 1901(b)(26)(C), (D), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1798, 1799, 1834; Pub. L. 98-369, div. A, title I, Sec. 124(a),
July 18, 1984, 98 Stat. 646; Pub. L. 99-514, title XII, Secs.
1211(b)(1)(A), 1212(a), (e), 1213(a), Oct. 22, 1986, 100 Stat.
2536, 2539, 2540; Pub. L. 100-647, title I, Sec. 1012(e)(3)(A),
(f), Nov 10, 1988, 102 Stat. 3500; Pub. L. 101-239, title VII, Sec.
7811(i)(2), Dec. 19, 1989, 103 Stat. 2409; Pub. L. 105-34, title
XI, Sec. 1174(a)(2), Aug. 5, 1997, 111 Stat. 989.)
-MISC1-
AMENDMENTS
1997 - Subsec. (c)(2)(B). Pub. L. 105-34 inserted concluding
provisions "In the case of transportation income derived from, or
in connection with, a vessel, this subparagraph shall only apply if
the taxpayer is a citizen or resident alien."
1989 - Subsec. (b)(2), (3). Pub. L. 101-239 substituted
"865(i)(1)" for "865(h)(1)".
1988 - Pub. L. 100-647, Sec. 1012(e)(3)(A), substituted "Special
rules for determining source" for "Item not specified in section
861 or 862" in section catchline.
Subsec. (e)(2). Pub. L. 100-647, Sec. 1012(f), substituted
"foreign country (or possession of the United States)" for "foreign
country" in two places.
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1212(e), substituted
"services" for "transportation or other services".
Subsec. (b)(2), (3). Pub. L. 99-514, Sec. 1211(b)(1)(A),
substituted "inventory property (within the meaning of section
865(h)(1))" for "personal property".
Subsec. (c)(2). Pub. L. 99-514, Sec. 1212(a), amended par. (2)
generally, in subpar. (A) substituting provisions relating to other
transportation having United States connections for provisions
relating to transportation between United States and any
possession, and in subpar. (B) substituting provisions relating to
special rule for personal service income for provisions relating to
special rule for certain lessors of aircraft.
Subsecs. (d), (e). Pub. L. 99-514, Sec. 1213(a), added subsecs.
(d) and (e).
1984 - Subsec. (c). Pub. L. 98-369 added subsec. (c).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (b). Pub. L. 94-455, Secs. 1901(b)(26)(C), (D),
1906(b)(13)(A), struck out "or his delegate" after "Secretary" in
introductory provisions, and inserted "or exchange" after "sale" in
pars. (2) and (3), and "or exchanged" after "sold" in par. (2)
wherever appearing.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to remuneration for
services performed in taxable years beginning after Dec. 31, 1997,
see section 1174(c) of Pub. L. 105-34, set out as a note under
section 7701 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1211(b)(1)(A) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Section 1212(f) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 887 of this title
and amending this section and sections 861, 872, and 883 of this
title] shall apply to taxable years beginning after December 31,
1986.
"(2) Special rule for certain leased property. - The amendments
made by subsections (a) and (d) [amending this section and section
861 of this title] shall not apply to any income attributable to
property held by the taxpayer on January 1, 1986, if such property
was first leased by the taxpayer before January 1, 1986, in a lease
to which section 863(c)(2)(B) or 861(e) of the Internal Revenue
Code of 1954 [now 1986] (as in effect on the day before the date of
the enactment of this Act [Oct. 22, 1986]) applied.
"(3) Special rule for certain ships leased by the united states
navy. -
"(A) In general. - In the case of any property described in
subparagraph (B), paragraph (2) shall be applied by substituting
'1987' for '1986' each place it appears.
"(B) Property to which paragraph applies. - Property described
in this subparagraph consists of 4 ships which are to be leased
by the United States Navy and which are the subject of Internal
Revenue Service rulings bearing the following dates and which
involved the following amount of financing, respectively:
"March 5, 1986 $176,844,000
February 5, 1986 64,567,000
April 22, 1986 64,598,000
May 22, 1986 175,300,000."
Section 1213(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 124(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to transportation beginning after the date of the enactment
of this Act [July 18, 1984] in taxable years ending after such
date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(26)(C), (D) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendments by sections 1211(b)(1)(A) and
1212(a) of Pub. L. 99-514 to the extent application of such
amendments would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES; ALLOCATION AND
APPOINTMENT; DEFINITIONS; SPECIAL RULES; EFFECTIVE DATES
For allocation and apportionment of qualified research and
experimental expenditures for purposes of sections 861 to 863 of
this title, see section 4009 of Pub. L. 100-647, set out as a note
under section 861 of this title.
1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF
RESEARCH AND EXPERIMENTAL EXPENDITURES
For rule governing allocation under subsec. (b) of this section
of amounts allowable as a deduction for qualified research and
experimental expenditures during taxable years beginning after Aug.
1, 1986, and on or before Aug. 1, 1987, see section 1216 of Pub. L.
99-514, set out as a note under section 861 of this title.
ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL
EXPENDITURES
For purposes of subsec. (b) of this section, all amounts
allowable as a deduction for qualified research and experimental
expenditures are to be allocated to income from sources within the
United States and deducted from such income in determining the
amount of taxable income from sources within the United States for
taxable years beginning after Aug. 13, 1983, and on or before Aug.
1, 1986, see section 126 of Pub. L. 98-369, set out as a note under
section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 818, 864, 865, 887, 954
of this title.
-End-
-CITE-
26 USC Sec. 864 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 864. Definitions and special rules
-STATUTE-
(a) Produced
For purposes of this part, the term "produced" includes created,
fabricated, manufactured, extracted, processed, cured, or aged.
(b) Trade or business within the United States
For purposes of this part, part II, and chapter 3, the term
"trade or business within the United States" includes the
performance of personal services within the United States at any
time within the taxable year, but does not include -
(1) Performance of personal services for foreign employer
The performance of personal services -
(A) for a nonresident alien individual, foreign partnership,
or foreign corporation, not engaged in trade or business within
the United States, or
(B) for an office or place of business maintained in a
foreign country or in a possession of the United States by an
individual who is a citizen or resident of the United States or
by a domestic partnership or a domestic corporation,
by a nonresident alien individual temporarily present in the
United States for a period or periods not exceeding a total of 90
days during the taxable year and whose compensation for such
services does not exceed in the aggregate $3,000.
(2) Trading in securities or commodities
(A) Stocks and securities
(i) In general
Trading in stocks or securities through a resident broker,
commission agent, custodian, or other independent agent.
(ii) Trading for taxpayer's own account
Trading in stocks or securities for the taxpayer's own
account, whether by the taxpayer or his employees or through
a resident broker, commission agent, custodian, or other
agent, and whether or not any such employee or agent has
discretionary authority to make decisions in effecting the
transactions. This clause shall not apply in the case of a
dealer in stocks or securities.
(B) Commodities
(i) In general
Trading in commodities through a resident broker,
commission agent, custodian, or other independent agent.
(ii) Trading for taxpayer's own account
Trading in commodities for the taxpayer's own account,
whether by the taxpayer or his employees or through a
resident broker, commission agent, custodian, or other agent,
and whether or not any such employee or agent has
discretionary authority to make decisions in effecting the
transactions. This clause shall not apply in the case of a
dealer in commodities.
(iii) Limitation
Clauses (i) and (ii) shall apply only if the commodities
are of a kind customarily dealt in on an organized commodity
exchange and if the transaction is of a kind customarily
consummated at such place.
(C) Limitation
Subparagraphs (A)(i) and (B)(i) shall apply only if, at no
time during the taxable year, the taxpayer has an office or
other fixed place of business in the United States through
which or by the direction of which the transactions in stocks
or securities, or in commodities, as the case may be, are
effected.
(c) Effectively connected income, etc.
(1) General rule
For purposes of this title -
(A) In the case of a nonresident alien individual or a
foreign corporation engaged in trade or business within the
United States during the taxable year, the rules set forth in
paragraphs (2), (3), (4), (6), and (7) shall apply in
determining the income, gain, or loss which shall be treated as
effectively connected with the conduct of a trade or business
within the United States.
(B) Except as provided in paragraph (6) or (7) or in section
871(d) or sections 882(d) and (e), in the case of a nonresident
alien individual or a foreign corporation not engaged in trade
or business within the United States during the taxable year,
no income, gain, or loss shall be treated as effectively
connected with the conduct of a trade or business within the
United States.
(2) Periodical, etc., income from sources within United States -
factors
In determining whether income from sources within the United
States of the types described in section 871(a)(1), section
871(h), section 881(a), or section 881(c), or whether gain or
loss from sources within the United States from the sale or
exchange of capital assets, is effectively connected with the
conduct of a trade or business within the United States, the
factors taken into account shall include whether -
(A) the income, gain, or loss is derived from assets used in
or held for use in the conduct of such trade or business, or
(B) the activities of such trade or business were a material
factor in the realization of the income, gain, or loss.
In determining whether an asset is used in or held for use in the
conduct of such trade or business or whether the activities of
such trade or business were a material factor in realizing an
item of income, gain, or loss, due regard shall be given to
whether or not such asset or such income, gain, or loss was
accounted for through such trade or business.
(3) Other income from sources within United States
All income, gain, or loss from sources within the United States
(other than income, gain, or loss to which paragraph (2) applies)
shall be treated as effectively connected with the conduct of a
trade or business within the United States.
(4) Income from sources without United States
(A) Except as provided in subparagraphs (B) and (C), no income,
gain, or loss from sources without the United States shall be
treated as effectively connected with the conduct of a trade or
business within the United States.
(B) Income, gain, or loss from sources without the United
States shall be treated as effectively connected with the conduct
of a trade or business within the United States by a nonresident
alien individual or a foreign corporation if such person has an
office or other fixed place of business within the United States
to which such income, gain, or loss is attributable and such
income, gain, or loss -
(i) consists of rents or royalties for the use of or for the
privilege of using intangible property described in section
862(a)(4) derived in the active conduct of such trade or
business;
(ii) consists of dividends or interest, and either is derived
in the active conduct of a banking, financing, or similar
business within the United States or is received by a
corporation the principal business of which is trading in
stocks or securities for its own account; or
(iii) is derived from the sale or exchange (outside the
United States) through such office or other fixed place of
business of personal property described in section 1221(a)(1),
except that this clause shall not apply if the property is sold
or exchanged for use, consumption, or disposition outside the
United States and an office or other fixed place of business of
the taxpayer in a foreign country participated materially in
such sale.
(C) In the case of a foreign corporation taxable under part I
or part II of subchapter L, any income from sources without the
United States which is attributable to its United States business
shall be treated as effectively connected with the conduct of a
trade or business within the United States.
(D) No income from sources without the United States shall be
treated as effectively connected with the conduct of a trade or
business within the United States if it either -
(i) consists of dividends, interest, or royalties paid by a
foreign corporation in which the taxpayer owns (within the
meaning of section 958(a)), or is considered as owning (by
applying the ownership rules of section 958(b)), more than 50
percent of the total combined voting power of all classes of
stock entitled to vote, or
(ii) is subpart F income within the meaning of section
952(a).
(5) Rules for application of paragraph (4)(B)
For purposes of subparagraph (B) of paragraph (4) -
(A) in determining whether a nonresident alien individual or
a foreign corporation has an office or other fixed place of
business, an office or other fixed place of business of an
agent shall be disregarded unless such agent (i) has the
authority to negotiate and conclude contracts in the name of
the nonresident alien individual or foreign corporation and
regularly exercises that authority or has a stock of
merchandise from which he regularly fills orders on behalf of
such individual or foreign corporation, and (ii) is not a
general commission agent, broker, or other agent of independent
status acting in the ordinary course of his business,
(B) income, gain, or loss shall not be considered as
attributable to an office or other fixed place of business
within the United States unless such office or fixed place of
business is a material factor in the production of such income,
gain, or loss and such office or fixed place of business
regularly carries on activities of the type from which such
income, gain, or loss is derived, and
(C) the income, gain, or loss which shall be attributable to
an office or other fixed place of business within the United
States shall be the income, gain, or loss property allocable
thereto, but, in the case of a sale or exchange described in
clause (iii) of such subparagraph, the income which shall be
treated as attributable to an office or other fixed place of
business within the United States shall not exceed the income
which would be derived from sources within the United States if
the sale or exchange were made in the United States.
(6) Treatment of certain deferred payments, etc.
For purposes of this title, in the case of any income or gain
of a nonresident alien individual or a foreign corporation which
-
(A) is taken into account for any taxable year, but
(B) is attributable to a sale or exchange of property or the
performance of services (or any other transaction) in any other
taxable year,
the determination of whether such income or gain is taxable under
section 871(b) or 882 (as the case may be) shall be made as if
such income or gain were taken into account in such other taxable
year and without regard to the requirement that the taxpayer be
engaged in a trade or business within the United States during
the taxable year referred to in subparagraph (A).
(7) Treatment of certain property transactions
For purposes of this title, if -
(A) any property ceases to be used or held for use in
connection with the conduct of a trade or business within the
United States, and
(B) such property is disposed of within 10 years after such
cessation,
the determination of whether any income or gain attributable to
such disposition is taxable under section 871(b) or 882 (as the
case may be) shall be made as if such sale or exchange occurred
immediately before such cessation and without regard to the
requirement that the taxpayer be engaged in a trade or business
within the United States during the taxable year for which such
income or gain is taken into account.
(d) Treatment of related person factoring income
(1) In general
For purposes of the provisions set forth in paragraph (2), if
any person acquires (directly or indirectly) a trade or service
receivable from a related person, any income of such person from
the trade or service receivable so acquired shall be treated as
if it were interest on a loan to the obligor under the
receivable.
(2) Provisions to which paragraph (1) applies
The provisions set forth in this paragraph are as follows:
(A) Part III of subchapter G of this chapter (relating to
foreign personal holding companies).
(B) Section 904 (relating to limitation on foreign tax
credit).
(C) Subpart F of part III of this subchapter (relating to
controlled foreign corporations).
(3) Trade or service receivable
For purposes of this subsection, the term "trade or service
receivable" means any account receivable or evidence of
indebtedness arising out of -
(A) the disposition by a related person of property described
in section 1221(a)(1), or
(B) the performance of services by a related person.
(4) Related person
For purposes of this subsection, the term "related person"
means -
(A) any person who is a related person (within the meaning of
section 267(b)), and
(B) any United States shareholder (as defined in section
951(b)) and any person who is a related person (within the
meaning of section 267(b)) to such a shareholder.
(5) Certain provisions not to apply
(A) Certain exceptions
The following provisions shall not apply to any amount
treated as interest under paragraph (1) or (6):
(i) Subparagraphs (A)(iii)(II), (B)(ii), and (C)(iii)(III)
of section 904(d)(2) (relating to exceptions for export
financing interest).
(ii) Subparagraph (A) of section 954(b)(3) (relating to
exception where foreign base company income is less than 5
percent or $1,000,000).
(iii) Subparagraph (B) of section 954(c)(2) (relating to
certain export financing).
(iv) Clause (i) of section 954(c)(3)(A) (relating to
certain income received from related persons).
(B) Special rules for possessions
An amount treated as interest under paragraph (1) shall not
be treated as income described in subparagraph (A) or (B) of
section 936(a)(1) unless such amount is from sources within a
possession of the United States (determined after the
application of paragraph (1)).
(6) Special rule for certain income from loans of a controlled
foreign corporation
Any income of a controlled foreign corporation (within the
meaning of section 957(a)) from a loan to a person for the
purpose of financing -
(A) the purchase of property described in section 1221(a)(1)
of a related person, or
(B) the payment for the performance of services by a related
person,
shall be treated as interest described in paragraph (1).
(7) Exception for certain related persons doing business in same
foreign country
Paragraph (1) shall not apply to any trade or service
receivable acquired by any person from a related person if -
(A) the person acquiring such receivable and such related
person are created or organized under the laws of the same
foreign country and such related person has a substantial part
of its assets used in its trade or business located in such
same foreign country, and
(B) such related person would not have derived any foreign
base company income (as defined in section 954(a), determined
without regard to section 954(b)(3)(A)), or any income
effectively connected with the conduct of a trade or business
within the United States, from such receivable if it had been
collected by such related person.
(8) Regulations
The Secretary shall prescribe such regulations as may be
necessary to prevent the avoidance of the provisions of this
subsection or section 956(b)(3).(!1)
(e) Rules for allocating interest, etc.
For purposes of this subchapter -
(1) Treatment of affiliated groups
The taxable income of each member of an affiliated group shall
be determined by allocating and apportioning interest expense of
each member as if all members of such group were a single
corporation.
(2) Gross income method may not be used for interest
All allocations and apportionments of interest expense shall be
made on the basis of assets rather than gross income.
(3) Tax-exempt assets not taken into account
(A) In general
For purposes of allocating and apportioning any deductible
expense, any tax-exempt asset (and any income from such an
asset) shall not be taken into account. A similar rule shall
apply in the case of the portion of any dividend (other than a
qualifying dividend as defined in section 243(b)) equal to the
deduction allowable under section 243 or 245(a) with respect to
such dividend and in the case of a like portion of any stock
the dividends on which would be so deductible and would not be
qualifying dividends (as so defined).
(B) Assets producing exempt extraterritorial income
For purposes of allocating and apportioning any interest
expense, there shall not be taken into account any qualifying
foreign trade property (as defined in section 943(a)) which is
held by the taxpayer for lease or rental in the ordinary course
of trade or business for use by the lessee outside the United
States (as defined in section 943(b)(2)).
(4) Basis of stock in nonaffiliated 10-percent owned corporations
adjusted for earnings and profits changes
(A) In general
For purposes of allocating and apportioning expenses on the
basis of assets, the adjusted basis of any stock in a
nonaffiliated 10-percent owned corporation shall be -
(i) increased by the amount of the earnings and profits of
such corporation attributable to such stock and accumulated
during the period the taxpayer held such stock, or
(ii) reduced (but not below zero) by any deficit in
earnings and profits of such corporation attributable to such
stock for such period.
(B) Nonaffiliated 10-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 taxpayer 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 application 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
indirectly) by a corporation, partnership, or trust shall be
treated as being owned proportionately by its shareholders,
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 with 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.
(5) Affiliated group
For purposes of this subsection -
(A) In general
Except as provided in subparagraph (B), the term 'affiliated
group' has the meaning given such term by section 1504
(determined without regard to paragraph (4) of section
1504(b)).
(B) Treatment of certain financial institutions
For purposes of subparagraph (A), any corporation described
in subparagraph (C) shall be treated as an includible
corporation for purposes of section 1504 only for purposes of
applying such section separately to corporations so described.
This subparagraph shall not apply for purposes of paragraph
(6).
(C) Description
A corporation is described in this subparagraph if -
(i) such corporation is a financial institution described
in section 581 or 591,
(ii) the business of such financial institution is
predominantly with persons other than related persons (within
the meaning of subsection (d)(4)) or their customers, and
(iii) such financial institution is required by State or
Federal law to be operated separately from any other entity
which is not such an institution.
(D) Treatment of bank holding companies
To the extent provided in regulations -
(i) a bank holding company (within the meaning of section
2(a) of the Bank Holding Company Act of 1956), and
(ii) any subsidiary of a financial institution described in
section 581 or 591 or of any bank holding company if such
subsidiary is predominantly engaged (directly or indirectly)
in the active conduct of a banking, financing, or similar
business,
shall be treated as a corporation described in subparagraph
(C).
(6) Allocation and apportionment of other expenses
Expenses other than interest which are not directly allocable
or apportioned to any specific income producing activity shall be
allocated and apportioned as if all members of the affiliated
group were a single corporation.
(7) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
section, including regulations providing -
(A) for the resourcing of income of any member of an
affiliated group or modifications to the consolidated return
regulations to the extent such resourcing or modification is
necessary to carry out the purposes of this section,
(B) for direct allocation of interest expense incurred to
carry out an integrated financial transaction to any interest
(or interest-type income) derived from such transaction,
(C) for the apportionment of expenses allocated to foreign
source income among the members of the affiliated group and
various categories of income described in section 904(d)(1),
(D) for direct allocation of interest expense in the case of
indebtedness resulting in a disallowance under section 246A,
(E) for appropriate adjustments in the application of
paragraph (3) in the case of an insurance company, and
(F) that this subsection shall not apply for purposes of any
provision of this subchapter to the extent the Secretary
determines that the application of this subsection for such
purposes would not be appropriate.
(f) Allocation of research and experimental expenditures
(1) In general
For purposes of sections 861(b), 862(b), and 863(b), qualified
research and experimental expenditures shall be allocated and
apportioned as follows:
(A) Any qualified research and experimental expenditures
expended solely to meet legal requirements imposed by a
political entity with respect to the improvement or marketing
of specific products or processes for purposes not reasonably
expected to generate gross income (beyond de minimis amounts)
outside the jurisdiction of the political entity shall be
allocated only to gross income from sources within such
jurisdiction.
(B) In the case of any qualified research and experimental
expenditures (not allocated under subparagraph (A)) to the
extent -
(i) that such expenditures are attributable to activities
conducted in the United States, 50 percent of such
expenditures shall be allocated and apportioned to income
from sources within the United States and deducted from such
income in determining the amount of taxable income from
sources within the United States, and
(ii) that such expenditures are attributable to activities
conducted outside the United States, 50 percent of such
expenditures shall be allocated and apportioned to income
from sources outside the United States and deducted from such
income in determining the amount of taxable income from
sources outside the United States.
(C) The remaining portion of qualified research and
experimental expenditures (not allocated under subparagraphs
(A) and (B)) shall be apportioned, at the annual election of
the taxpayer, on the basis of gross sales or gross income,
except that, if the taxpayer elects to apportion on the basis
of gross income, the amount apportioned to income from sources
outside the United States shall at least be 30 percent of the
amount which would be so apportioned on the basis of gross
sales.
(2) Qualified research and experimental expenditures
For purposes of this section, the term "qualified research and
experimental expenditures" means amounts which are research and
experimental expenditures within the meaning of section 174. For
purposes of this paragraph, rules similar to the rules of
subsection (c) of section 174 shall apply. Any qualified research
and experimental expenditures treated as deferred expenses under
subsection (b) of section 174 shall be taken into account under
this subsection for the taxable year for which such expenditures
are allowed as a deduction under such subsection.
(3) Special rules for expenditures attributable to activities
conducted in space, etc.
(A) In general
Any qualified research and experimental expenditures
described in subparagraph (B) -
(i) if incurred by a United States person, shall be
allocated and apportioned under this section in the same
manner as if they were attributable to activities conducted
in the United States, and
(ii) if incurred by a person other than a United States
person, shall be allocated and apportioned under this section
in the same manner as if they were attributable to activities
conducted outside the United States.
(B) Description of expenditures
For purposes of subparagraph (A), qualified research and
experimental expenditures are described in this subparagraph if
such expenditures are attributable to activities conducted -
(i) in space,
(ii) on or under water not within the jurisdiction (as
recognized by the United States) of a foreign country,
possession of the United States, or the United States, or
(iii) in Antarctica.
(4) Affiliated group
(A) Except as provided in subparagraph (B), the allocation
and apportionment required by paragraph (1) shall be determined
as if all members of the affiliated group (as defined in
subsection (e)(5)) were a single corporation.
(B) For purposes of the allocation and apportionment required
by paragraph (1) -
(i) sales and gross income from products produced in whole
or in part in a possession by an electing corporation (within
the meaning of section 936(h)(5)(E)), and
(ii) dividends from an electing corporation,
shall not be taken into account, except that this subparagraph
shall not apply to sales of (and gross income and dividends
attributable to sales of) products with respect to which an
election under section 936(h)(5)(F) is not in effect.
(C) The qualified research and experimental expenditures
taken into account for purposes of paragraph (1) shall be
adjusted to reflect the amount of such expenditures included in
computing the cost-sharing amount (determined under section
936(h)(5)(C)(i)(I)).
(D) The Secretary may prescribe such regulations as may be
necessary to carry out the purposes of this paragraph,
including regulations providing for the source of gross income
and the allocation and apportionment of deductions to take into
account the adjustments required by subparagraph (B) or (C).
(E) Paragraph (6) of subsection (e) shall not apply to
qualified research and experimental expenditures.
(5) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this subsection,
including regulations relating to the determination of whether
any expenses are attributable to activities conducted in the
United States or outside the United States and regulations
providing such adjustments to the provisions of this subsection
as may be appropriate in the case of cost-sharing arrangements
and contract research.
(6) Applicability
This subsection shall apply to the taxpayer's first taxable
year (beginning on or before August 1, 1994) following the
taxpayer's last taxable year to which Revenue Procedure 92-56
applies or would apply if the taxpayer elected the benefits of
such Revenue Procedure.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 278; Pub. L. 89-809, title I,
Sec. 102(d), Nov. 13, 1966, 80 Stat. 1544; Pub. L. 94-455, title
XIX, Sec. 1901(a)(113), Oct. 4, 1976, 90 Stat. 1783; Pub. L.
98-369, div. A, title I, Secs. 123(a), 127(c), July 18, 1984, 98
Stat. 644, 651; Pub. L. 99-514, title XII, Secs. 1201(d)(4),
1211(b)(2), 1215(a), (b)(1), 1221(a)(2), 1223(b)(1), 1242(a), (b),
1275(c)(7), title XVIII, Secs. 1810(c)(2), (3), 1899A(21), Oct. 22,
1986, 100 Stat. 2525, 2536, 2544, 2545, 2550, 2558, 2580, 2599,
2824, 2959; Pub. L. 100-203, title X, Sec. 10242(b), Dec. 22, 1987,
101 Stat. 1330-423; Pub. L. 100-647, title I, Sec. 1012(a)(1)(B),
(d)(7), (10), (g)(5), (h)(1), (2)(A), (3)-(6), (p)(30), (r), Nov.
10, 1988, 102 Stat. 3494, 3498, 3499, 3501-3503, 3521, 3525; Pub.
L. 101-239, title VII, Sec. 7111, Dec. 19, 1989, 103 Stat. 2326;
Pub. L. 101-508, title XI, Sec. 11401(a), Nov. 5, 1990, 104 Stat.
1388-472; Pub. L. 102-227, title I, Sec. 101(a), Dec. 11, 1991, 105
Stat. 1686; Pub. L. 103-66, title XIII, Sec. 13234, Aug. 10, 1993,
107 Stat. 504; Pub. L. 105-34, title XI, Sec. 1162(a), Aug. 5,
1997, 111 Stat. 987; Pub. L. 106-170, title V, Sec.
532(c)(2)(N)-(P), Dec. 17, 1999, 113 Stat. 1931; Pub. L. 106-519,
Sec. 4(3), Nov. 15, 2000, 114 Stat. 2432.)
-REFTEXT-
REFERENCES IN TEXT
Section 956(b)(3), referred to in subsec. (d)(8), was
redesignated section 956(c)(3) by Pub. L. 103-66, title XIII, Sec.
13232(a)(1), Aug. 10, 1993, 107 Stat. 501.
Section 2(a) of the Bank Holding Company Act of 1956, referred to
in subsec. (e)(5)(D)(i), is classified to section 1841(a) of Title
12, Banks and Banking.
-MISC1-
AMENDMENTS
2000 - Subsec. (e)(3). Pub. L. 106-519 designated existing
provisions as subpar. (A), inserted heading, and added subpar. (B).
1999 - Subsecs. (c)(4)(B)(iii), (d)(3)(A), (6)(A). Pub. L.
106-170 substituted "section 1221(a)(1)" for "section 1221(1)".
1997 - Subsec. (b)(2)(A)(ii). Pub. L. 105-34 struck out ", or in
the case of a corporation (other than a corporation which is, or
but for section 542(c)(7), 542(c)(10), or 543(b)(1)(C) would be, a
personal holding company) the principal business of which is
trading in stocks or securities for its own account, if its
principal office is in the United States" after "dealer in stocks
or securities".
1993 - Subsec. (f)(1)(B). Pub. L. 103-66, Sec. 13234(a),
substituted "50 percent" for "64 percent" in cls. (i) and (ii).
Subsec. (f)(4)(D). Pub. L. 103-66, Sec. 13234(b)(2), substituted
"subparagraph (B) or (C)" for "subparagraph (C)".
Subsec. (f)(5), (6). Pub. L. 103-66, Sec. 13234(b)(1), added
pars. (5) and (6) and struck out heading and text of former par.
(5). Text read as follows:
"(A) In general. - This subsection shall apply to the taxpayer's
first 3 taxable years beginning after August 1, 1989, and on or
before August 1, 1992.
"(B) Reduction. - Notwithstanding subparagraph (A), in the case
of the taxpayer's first taxable year beginning after August 1,
1991, this subsection shall only apply to qualified research and
experimental expenditures incurred during the first 6 months of
such taxable year."
1991 - Subsec. (f)(5). Pub. L. 102-227 amended par. (5)
generally. Prior to amendment, par. (5) read as follows: "This
subsection shall apply to the taxpayer's first 2 taxable years
beginning after August 1, 1989, and on or before August 1, 1991."
1990 - Subsec. (f)(5). Pub. L. 101-508 substituted "Years" for
"Year" in heading and amended text generally. Prior to amendment,
text read as follows:
"(A) In general. - Except as provided in this paragraph, this
subsection shall apply to the taxpayer's first taxable year
beginning after August 1, 1989, and before August 2, 1990.
"(B) Reduction. - Notwithstanding subparagraph (A), this
subsection shall only apply to that portion of the qualified
research and experimental expenditures for the taxable year
referred to in subparagraph (A) which bears the same ratio to the
total amount of such expenditures as -
"(i) the lesser of 9 months or the number of months in the
taxable year, bears to
"(ii) the number of months in the taxable year."
1989 - Subsec. (f). Pub. L. 101-239 added subsec. (f).
1988 - Subsec. (b)(2)(A)(ii). Pub. L. 100-647, Sec. 1012(p)(30),
substituted "section 542(c)(7), 542(c)(10)," for "section
542(c)(7)".
Subsec. (c)(2). Pub. L. 100-647, Sec. 1012(g)(5), struck out at
end "In applying this paragraph and paragraph (4), interest
referred to in section 861(a)(1)(A) shall be considered income from
sources within the United States."
Subsec. (c)(4)(B)(i), (ii). Pub. L. 100-647, Sec. 1012(d)(10),
struck out "(including any gain or loss realized on the sale or
exchange of such property)" after "section 862(a)(4)" in cl. (i)
and ", or gain or loss from the sale or exchange of stock or notes,
bonds, or other evidences of indebtedness" after "dividends or
interest" in cl. (ii).
Subsec. (c)(4)(B)(iii). Pub. L. 100-647, Sec. 1012(d)(7), added
cl. (iii).
Subsec. (c)(6). Pub. L. 100-647, Sec. 1012(r)(2), amended par.
(6) generally. Prior to amendment, par. (6) read as follows: "For
purposes of this title, any income or gain of a nonresident alien
individual or a foreign corporation for any taxable year which is
attributable to a sale or exchange of property or the performance
of services (or any other transaction) in any other taxable year
shall be treated as effectively connected with the conduct of a
trade or business within the United States if it would have been so
treated if such income or gain were taken into account in such
other taxable year."
Subsec. (c)(7). Pub. L. 100-647, Sec. 1012(r)(1), amended par.
(7) generally. Prior to amendment, par. (7) read as follows: "For
purposes of this title, if any property ceases to be used or held
for use in connection with the conduct of a trade or business
within the United States, the determination of whether any income
or gain attributable to a sale or exchange of such property
occurring within 10 years after such cessation is effectively
connected with the conduct of a trade or business within the United
States shall be made as if such sale or exchange occurred
immediately before such cessation."
Subsec. (d)(5)(A)(i). Pub. L. 100-647, Sec. 1012(a)(1)(B),
substituted "(C)(iii)(III)" for "(C)(iii)".
Subsec. (e). Pub. L. 100-647, Sec. 1012(h)(6)(B), struck out
"(except as provided in regulations)" after "subchapter".
Subsec. (e)(1). Pub. L. 100-647, Sec. 1012(h)(2)(A), struck out
"from sources outside the United States" after "affiliated group".
Subsec. (e)(3). Pub. L. 100-647, Sec. 1012(h)(3), inserted
sentence at end and struck out former last sentence which read as
follows: "A similar rule shall apply in the case of any dividend
(other than a qualifying dividend as defined in section 243(b)) for
which a deduction is allowable under section 243 or 245(a) and any
stock the dividends on which would be so deductible and would not
be qualifying dividends (as so defined)."
Subsec. (e)(4). Pub. L. 100-647, Sec. 1012(h)(1), substituted
"nonaffiliated 10-percent owned corporations" for "certain
corporations" in heading and amended text generally. Prior to
amendment, text read as follows: "For purposes of allocating and
apportioning expenses on the basis of assets, the adjusted basis of
any asset which is stock in a corporation which is not included in
the affiliated group and in which members of the affiliated group
own 10 percent or more of the total combined voting power of all
classes of stock entitled to vote in such corporation shall be -
"(A) increased by the amount of the earnings and profits of
such corporation attributable to such stock and accumulated
during the period the taxpayer held such stock, or
"(B) reduced (but not below zero) by any deficit in earnings
and profits of such corporation attributable to such stock for
such period."
Subsec. (e)(5)(B). Pub. L. 100-647, Sec. 1012(h)(4)(B), inserted
at end "This subparagraph shall not apply for purposes of paragraph
(6)."
Subsec. (e)(5)(D). Pub. L. 100-647, Sec. 1012(h)(4)(A), added
subpar. (D).
Subsec. (e)(6). Pub. L. 100-647, Sec. 1012(h)(5), substituted
"directly allocable or apportioned" for "directly allocable and
apportioned".
Subsec. (e)(7)(D) to (F). Pub. L. 100-647, Sec. 1012(h)(6)(A),
added subpars. (D) to (F).
1987 - Subsec. (c)(4)(C). Pub. L. 100-203 inserted "or part II"
after "part I".
1986 - Pub. L. 99-514, Sec. 1215(b)(1), inserted "and special
rules" in section catchline.
Subsec. (c)(1)(A). Pub. L. 99-514, Sec. 1242(b)(1), inserted
reference to pars. (6) and (7).
Subsec. (c)(1)(B). Pub. L. 99-514, Sec. 1242(b)(2), inserted
"paragraph (6) or (7) or in".
Subsec. (c)(2). Pub. L. 99-514, Sec. 1899A(21), inserted a comma
between "section 871(h)" and "section 881(a)".
Subsec. (c)(4)(B)(iii). Pub. L. 99-514, Sec. 1211(b)(2), struck
out cl. (iii), which read as follows: "is derived from the sale or
exchange (without the United States) through such office or other
fixed place of business of personal property described in section
1221(1), except that this clause shall not apply if the property is
sold or exchanged for use, consumption, or disposition outside the
United States and an office or other fixed place of business of the
taxpayer outside the United States participated materially in such
sale or exchange."
Subsec. (c)(6), (7). Pub. L. 99-514, Sec. 1242(a), added pars.
(6) and (7).
Subsec. (d)(5)(A)(i). Pub. L. 99-514, Sec. 1201(d)(4), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
"Subparagraphs (A), (B), (C), and (D) of section 904(d)(2)
(relating to interest income to which separate limitation applies)
and subparagraph (J) of section 904(d)(3) (relating to interest
from members of same affiliated group)."
Pub. L. 99-514, Sec. 1810(c)(3), inserted "and subparagraph (J)
of section 904(d)(3) (relating to interest from members of same
affiliated group)".
Subsec. (d)(5)(A)(ii). Pub. L. 99-514, Sec. 1223(b)(1),
substituted "less than 5 percent or $1,000,000" for "less than 10
percent".
Subsec. (d)(5)(A)(iii). Pub. L. 99-514, Sec. 1221(a)(2), amended
cl. (iii) generally, substituting "section 954(c)(2) (relating to
certain export financing)" for "section 954(c)(3) (relating to
certain income derived in active conduct of trade or business)".
Subsec. (d)(5)(A)(iv). Pub. L. 99-514, Sec. 1221(a)(2), amended
cl. (iv) generally, substituting "Clause (i) of section
954(c)(3)(A) (relating to" for "Subparagraphs (A) and (B) of
section 954(c)(4) (relating to exception for".
Subsec. (d)(5)(B). Pub. L. 99-514, Sec. 1275(c)(7), amended
subpar. (B) generally, striking out cl. (i) heading, substituting
"An amount" for "Any amount", and striking out cl. (ii), Virgin
Islands corporations, which read as follows: "Subsection (b) of
section 934 shall not apply to any amount treated as interest under
paragraph (1) unless such amount is from sources within the Virgin
Islands (determined after the application of paragraph (1))."
Subsec. (d)(7), (8). Pub. L. 99-514, Sec. 1810(c)(2), added par.
(7) and redesignated former par. (7) as (8).
Subsec. (e). Pub. L. 99-514, Sec. 1215(a), added subsec. (e).
1984 - Subsec. (c)(2). Pub. L. 98-369, Sec. 127(c), substituted
"section 871(a)(1), section 871(h) section 881(a), or section
881(c)" for "section 871(a)(1) or section 881(a)".
Subsec. (d). Pub. L. 98-369, Sec. 123(a), added subsec. (d).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(113)(A),
substituted in heading "Produced" for "Sale, etc." and struck out
in text provisions relating to the definition of sale and sold.
Subsec. (c)(4)(B)(i). Pub. L. 94-455, Sec. 1901(a)(113)(B),
substituted "sale or exchange" for "sale".
Subsec. (c)(4)(B)(iii). Pub. L. 94-455, Sec. 1901(a)(113)(B),
(C), substituted "sold or exchanged" for "sold" and "sale or
exchange" for "sale" wherever appearing.
Subsec. (c)(5)(C). Pub. L. 94-455, Sec. 1901(a)(113)(B),
substituted "sale or exchange" for "sale" wherever appearing.
1966 - Pub. L. 89-809 designated existing provisions as subsec.
(a) and added subsecs. (b) and (c).
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-519 applicable to transactions after
Sept. 30, 2000, with special rules relating to existing foreign
sales corporations, see section 5 of Pub. L. 106-519, set out as an
Effective Date note under section 941 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1162(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1991 AMENDMENT
Section 101(b) of Pub. L. 102-227 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after August 1, 1989."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11401(b) of Pub. L. 101-508 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after August 1, 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10242(d) of Pub. L.
100-203, set out as a note under section 816 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1201(d)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1201(e) of Pub. L. 99-514, set out as a note
under section 904 of this title.
Amendment by section 1211(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Section 1215(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(h)(7), Nov. 10, 1988, 102 Stat. 3504; Pub. L.
104-191, title V, Sec. 521(a), Aug. 21, 1996, 110 Stat. 2103,
provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section] shall apply to taxable years beginning after December 31,
1986.
"(2) Transitional rules. -
"(A) General phase-in. -
"(i) In general. - In the case of the 1st 3 taxable years of
the taxpayer beginning after December 31, 1986, the amendments
made by this section shall not apply to interest expenses paid
or accrued by the taxpayer during the taxable year with respect
to an aggregate amount of indebtedness which does not exceed
the general phase-in amount.
"(ii) General phase-in amount. - Except as provided in clause
(iii), the general phase-in amount for purposes of clause (i)
is the applicable percentage (determined under the following
table) of the aggregate amount of indebtedness of the taxpayer
outstanding on November 16, 1985:
The applicable
"In the case of the: percentage is:
1st taxable year 75
2nd taxable year 50
3rd taxable year 25.
--------------------------------------------------------------------
"(iii) Lower limit where taxpayer reduces indebtedness. - For
purposes of applying this subparagraph to interest expenses
attributable to any month, the general phase-in amount shall in
no event exceed the lowest amount of indebtedness of the
taxpayer outstanding as of the close of any preceding month
beginning after November 16, 1985. To the extent provided in
regulations, the average amount of indebtedness outstanding
during any month shall be used (in lieu of the amount
outstanding as of the close of such month) for purposes of the
preceding sentence.
"(B) Consolidation rule not to apply to certain interest. -
"(i) In general. - In the case of the 1st 5 taxable years of
the taxpayer beginning after December 31, 1986 -
"(I) subparagraph (A) shall not apply for purposes of
paragraph (1) of section 864(e) of the Internal Revenue Code
of 1986 (as added by this section), but
"(II) such paragraph (1) shall not apply to interest
expenses paid or accrued by the taxpayer during the taxable
year with respect to an aggregate amount of indebtedness
which does not exceed the special phase-in amount.
"(ii) Special phase-in amount. - The special phase-in amount
for purposes of clause (i) is the sum of -
"(I) the general phase-in amount as determined for purposes
of subparagraph (A),
"(II) the 5-year phase-in amount, and
"(III) the 4-year phase-in amount.
For purposes of applying this subparagraph to interest expense
attributable to any month, the special phase-in amount shall in
no event exceed the limitation determined under subparagraph
(A)(iii).
"(iii) 5-year phase-in amount. - The 5-year phase-in amount
is the lesser of -
"(I) the applicable percentage (determined under the
following table for purposes of this subclause) of the 5-year
debt amount, or
"(II) the applicable percentage (determined under the
following table for purposes of this subclause) of the 5-year
debt amount reduced by paydowns:
"In the case of the: The applicable The applicable
percentage for percentage for
purposes of purposes of
subclause (I) is: subclause (II)
is:
--------------------------------------------------------------------
1st taxable year 8(!1/3) 10
2nd taxable year 16(!2/3) 25
3rd taxable year 25 50
4th taxable year 33(!1/3) 100
5th taxable year 16 2/3 100.
--------------------------------------------------------------------
"(iv) 4-year phase-in amount. - The 4-year phase-in amount is
the lesser of -
"(I) the applicable percentage (determined under the
following table for purposes of this subclause) of the 4-year
debt amount, or
"(II) the applicable percentage (determined under the
following table for purposes of this subclause) of the 4-year
debt amount reduced by paydowns to the extent such paydowns
exceed the 5-year debt amount:
"In the case of the: The applicable The applicable
percentage for percentage for
purposes of purposes of
subclause (I) is: subclause (II)
is:
--------------------------------------------------------------------
1st taxable year 5 6 1/4
2nd taxable year 10 16 2/3
3rd taxable year 15 37 1/2
4th taxable year 20 100
5th taxable year 0 0.
--------------------------------------------------------------------
"(v) 5-year debt amount. - The term '5-year debt amount'
means the excess (if any) of -
"(I) the amount of the outstanding indebtedness of the
taxpayer on May 29, 1985, over
"(II) the amount of the outstanding indebtedness of the
taxpayer as of the close of December 31, 1983.
The 5-year debt amount shall not exceed the aggregate amount of
indebtedness of the taxpayer outstanding on November 16, 1985.
"(vi) 4-year debt amount. - The term '4-year debt amount'
means the excess (if any) of -
"(I) the amount referred to in clause (v)(II), over
"(II) the amount of the outstanding indebtedness of the
taxpayer as of the close of December 31, 1982.
The 4-year debt amount shall not exceed the aggregate amount of
indebtedness of the taxpayer outstanding on November 16, 1985,
reduced by the 5-year debt amount.
"(vii) Paydowns. - For purposes of applying this subparagraph
to interest expenses attributable to any month, the term
'paydowns' means the excess (if any) of -
"(I) the aggregate amount of indebtedness of the taxpayer
outstanding on November 16, 1985, over
"(II) the lowest amount of indebtedness of the taxpayer
outstanding as of the close of any preceding month beginning
after November 16, 1985 (or, to the extent provided in
regulations under subparagraph (A)(iii), the average amount
of indebtedness outstanding during any such month).
"(C) Coordination of subparagraphs (a) and (b). - In applying
subparagraph (B), there shall first be taken into account
indebtedness to which subparagraph (A) applies.
"(D) Special rules. -
"(i) In the case of the 1st 9 taxable years of the taxpayer
beginning after December 31, 1986, the amendments made by this
section shall not apply to interest expenses paid or accrued by
the taxpayer during the taxable year with respect to an
aggregate amount of indebtedness which does not exceed the
applicable percentage (determined under the following table) of
the indebtedness described in clause (iii) or (iv):
The applicable
"In the case of the: percentage is:
1st taxable year 90
2nd taxable year 80
3rd taxable year 70
4th taxable year 60
5th taxable year 50
6th taxable year 40
7th taxable year 30
8th taxable year 20
9th taxable year 10.
"(ii) The provisions of this subparagraph shall apply in lieu
of the provisions of subparagraphs (A) and (B).
"(iii) Indebtedness outstanding on may 29, 1985. -
Indebtedness is described in this clause if it is indebtedness
(which was outstanding on May 29, 1985) of a corporation
incorporated on June 13, 1917, which has its principal place of
business in Bartlesville, Oklahoma.
"(iv) Indebtedness outstanding on may 29, 1985. -
Indebtedness is described in this clause if it is indebtedness
(which was outstanding on May 29, 1985) of a member of an
affiliated group (as defined in section 1504(a) [of the
Internal Revenue Code of 1986]), the common parent of which was
incorporated on August 26, 1926, and has its principal place of
business in Harrison, New York.
"(E) Treatment of affiliated group. - For purposes of this
paragraph, all members of the same affiliated group of
corporations (as defined in section 864(e)(5)(A) of the Internal
Revenue Code of 1986, as added by this section) shall be treated
as 1 taxpayer whether or not such members filed a consolidated
return.
"(F) Election to have paragraph not apply. - A taxpayer may
elect (at such time and in such manner as the Secretary of the
Treasury or his delegate may prescribe) to have this paragraph
not apply. In the case of members of the same affiliated group
(as so defined), such an election may be made only if each member
consents to such election.
"(3) Special rule. -
"(A) In general. - In the case of a qualified corporation, in
lieu of applying paragraph (2), the amendments made by this
section shall not apply to interest expenses allocable to any
indebtedness to the extent such indebtedness does not exceed
$500,000,000 if -
"(i) the indebtedness was incurred to develop or improve
existing property that is owned by the taxpayer on November 16,
1985, and was acquired with the intent to develop or improve
the property,
"(ii) the loan agreement with respect to the indebtedness
provides that the funds are to be utilized for purposes of
developing or improving the above property, and
"(iii) the debt to equity ratio of the companies that join in
the filing of the consolidated return is less than 15 percent.
"(B) Qualified corporation. - For purposes of subparagraph (A),
the term 'qualified corporation' means a corporation -
"(i) which was incorporated in Delaware on June 29, 1964,
"(ii) the principal subsidiary of which is a resident of
Arkansas, and
"(iii) which is a member of an affiliated group the average
daily United States production of oil of which is less than
50,000 barrels and the average daily United States refining of
which is less than 150,000 barrels.
"(4) Special rules for subsidiary. - The amendments made by this
section shall not apply to interest on up to the applicable dollar
amount of indebtedness of a subsidiary incorporated on February 11,
1975, the indebtedness of which on May 6, 1986, included -
"(A) $100,000,000 face amount of 11 3/4 percent notes due in
1990,
"(B) $100,000,000 of 8 3/4 percent notes due in 1989,
"(C) 6 3/4 percent Japanese yen notes due in 1991, and
"(D) 5 3/8 percent Swiss franc bonds due in 1994.
For purposes of this paragraph, the term 'applicable dollar amount'
means $600,000,000 in the case of taxable years beginning in 1987
through 1991, $500,000,000 in the case of the taxable year
beginning in 1992, $400,000,000 in the case of the taxable year
beginning in 1993, $300,000,000 in the case of the taxable year
beginning in 1994, $200,000,000 in the case of the taxable year
beginning in 1995, $100,000,000 in the case of the taxable year
beginning in 1996, and zero in the case of taxable years beginning
after 1996.
"[(5) Repealed. Pub. L. 104-191, title V, Sec. 521(a), Aug. 21,
1996, 110 Stat. 2103.]
"(6) Special rules for allocating general and administrative
expenses. -
"(A) In general. - In the case of an affiliated group of
domestic corporations the common parent of which has its
principal office in New Brunswick, New Jersey, and has a
certificate of organization which was filed with the Secretary of
the State of New Jersey on November 10, 1887, the amendments made
by this section shall not apply to the phase-in percentage of
general and administrative expenses paid or incurred in its 1st 3
taxable years beginning after December 31, 1986.
"(B) Phase-in percentage. - For purposes of subparagraph (A):
"In the case of taxable The phase-in
years beginning in: percentage is:
1987 75
1988 50
1989 25."
--------------------------------------------------------------------
[Section 521(b) of Pub. L. 104-191 provided that:
["(1) In general. - The amendment made by this section [amending
section 1215(c) of Pub. L. 99-514, set out above] shall apply to
taxable years beginning after December 31, 1995.
["(2) Special rule. - In the case of the first taxable year
beginning after December 31, 1995, the pre-effective date portion
of the interest expense of the corporation referred to in such
paragraph (5) of such section 1215(c) [of Pub. L. 99-514] for such
taxable year shall be allocated and apportioned without regard to
such amendment. For purposes of the preceding sentence, the
pre-effective date portion is the amount which bears the same ratio
to the interest expense for such taxable year as the number of days
during such taxable year before the date of the enactment of this
Act [Aug. 21, 1996] bears to 366."]
Amendment by section 1221(a)(2) of Pub. L. 99-514 applicable to
taxable years of foreign corporations beginning after Dec. 31,
1986, except as otherwise provided, see section 1221(g) of Pub. L.
99-514, set out as a note under section 954 of this title.
Section 1223(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 881 and
954 of this title] shall apply to taxable years beginning after
December 31, 1986."
Section 1242(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1986."
Amendment by section 1275(c)(7) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
Amendment by section 1810(c)(2), (3) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 123(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
956 of this title] shall apply to accounts receivable and evidences
of indebtedness transferred after March 1, 1984, in taxable years
ending after such date.
"(2) Transitional rule. - The amendments made by this section
shall not apply to accounts receivable and evidences of
indebtedness acquired after March 1, 1984, and before March 1,
1994, by a Belgian corporation in existence on March 1, 1984, in
any taxable year ending after such date, but only to the extent
that the amount includible in gross income by reason of section 956
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] with
respect to such corporation for all such taxable years is not
reduced by reason of this paragraph by more than the lesser of -
"(A) $15,000,000 or
"(B) the amount of the Belgian corporation's adjusted basis on
March 1, 1984, in stock of a foreign corporation formed to issue
bonds outside the United States to the public."
Amendment by section 127(c) of Pub. L. 98-369 applicable to
interest received after July 18, 1984, with respect to obligations
issued after such date, in taxable years ending after such date,
see section 127(g)(1) of Pub. L. 98-369, set out as a note under
section 871 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective for taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, except that in applying
section 864(c)(4)(B)(iii) of this title with respect to a binding
contract entered into on or before Feb. 24, 1966, activities in the
United States on or before such date in negotiating or carrying out
such contract shall not be taken into account, see section
102(e)(1) of Pub. L. 89-809, set out as a note under section 861 of
this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 1201(d)(4) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, and for nonapplication of amendments by
sections 1211(b)(2) and 1242(a) of Pub. L. 99-514 to the extent
application of such amendments would be contrary to any treaty
obligation of the United States in effect on Oct. 22, 1986, with
provision that for such purposes any amendment by title I of Pub.
L. 100-647 be treated as if it had been included in the provision
of Pub. L. 99-514 to which such amendment relates, see section
1012(aa)(2) to (4) of Pub. L. 100-647, set out as a note under
section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 865, 871, 881, 885, 904,
936, 956 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 865 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 865. Source rules for personal property sales
-STATUTE-
(a) General rule
Except as otherwise provided in this section, income from the
sale of personal property -
(1) by a United States resident shall be sourced in the United
States, or
(2) by a nonresident shall be sourced outside the United
States.
(b) Exception for inventory property
In the case of income derived from the sale of inventory property
-
(1) this section shall not apply, and
(2) such income shall be sourced under the rules of sections
861(a)(6), 862(a)(6), and 863.
Notwithstanding the preceding sentence, any income from the sale of
any unprocessed timber which is a softwood and was cut from an area
in the United States shall be sourced in the United States and the
rules of sections 862(a)(6) and 863(b) shall not apply to any such
income. For purposes of the preceding sentence, the term
"unprocessed timber" means any log, cant, or similar form of
timber.
(c) Exception for depreciable personal property
(1) In general
Gain (not in excess of the depreciation adjustments) from the
sale of depreciable personal property shall be allocated between
sources in the United States and sources outside the United
States -
(A) by treating the same proportion of such gain as sourced
in the United States as the United States depreciation
adjustments with respect to such property bear to the total
depreciation adjustments, and
(B) by treating the remaining portion of such gain as sourced
outside the United States.
(2) Gain in excess of depreciation
Gain (in excess of the depreciation adjustments) from the sale
of depreciable personal property shall be sourced as if such
property were inventory property.
(3) United States depreciation adjustments
For purposes of this subsection -
(A) In general
The term "United States depreciation adjustments" means the
portion of the depreciation adjustments to the adjusted basis
of the property which are attributable to the depreciation
deductions allowable in computing taxable income from sources
in the United States.
(B) Special rule for certain property
Except in the case of property of a kind described in section
168(g)(4), if, for any taxable year -
(i) such property is used predominantly in the United
States, or
(ii) such property is used predominantly outside the United
States,
all of the depreciation deductions allowable for such year
shall be treated as having been allocated to income from
sources in the United States (or, where clause (ii) applies,
from sources outside the United States).
(4) Other definitions
For purposes of this subsection -
(A) Depreciable personal property
The term "depreciable personal property" means any personal
property if the adjusted basis of such property includes
depreciation adjustments.
(B) Depreciation adjustments
The term "depreciation adjustments" means adjustments
reflected in the adjusted basis of any property on account of
depreciation deductions (whether allowed with respect to such
property or other property and whether allowed to the taxpayer
or to any other person).
(C) Depreciation deductions
The term "depreciation deductions" means any deductions for
depreciation or amortization or any other deduction allowable
under any provision of this chapter which treats an otherwise
capital expenditure as a deductible expense.
(d) Exception for intangibles
(1) In general
In the case of any sale of an intangible -
(A) this section shall apply only to the extent the payments
in consideration of such sale are not contingent on the
productivity, use, or disposition of the intangible, and
(B) to the extent such payments are so contingent, the source
of such payments shall be determined under this part in the
same manner as if such payments were royalties.
(2) Intangible
For purposes of paragraph (1), the term "intangible" means any
patent, copyright, secret process or formula, goodwill,
trademark, trade brand, franchise, or other like property.
(3) Special rule in the case of goodwill
To the extent this section applies to the sale of goodwill,
payments in consideration of such sale shall be treated as from
sources in the country in which such goodwill was generated.
(4) Coordination with subsection (c)
(A) Gain not in excess of depreciation adjustments sourced
under subsection (c)
Notwithstanding paragraph (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.
(e) Special rules for sales through offices or fixed places of
business
(1) Sales by residents
(A) In general
In the case of income not sourced under subsection (b), (c),
(d)(1)(B) or (3), or (f), if a United States resident maintains
an office or other fixed place of business in a foreign
country, income from sales of personal property attributable to
such office or other fixed place of business shall be sourced
outside the United States.
(B) Tax must be imposed
Subparagraph (A) shall not apply unless an income tax equal
to at least 10 percent of the income from the sale is actually
paid to a foreign country with respect to such income.
(2) Sales by nonresidents
(A) In general
Notwithstanding any other provisions of this part, if a
nonresident maintains an office or other fixed place of
business in the United States, income from any sale of personal
property (including inventory property) attributable to such
office or other fixed place of business shall be sourced in the
United States. The preceding sentence shall not apply for
purposes of section 971 (defining export trade corporation).
(B) Exception
Subparagraph (A) shall not apply to any sale of inventory
property which is sold for use, disposition, or consumption
outside the United States if an office or other fixed place of
business of the taxpayer in a foreign country materially
participated in the sale.
(3) Sales attributable to an office or other fixed place of
business
The principles of section 864(c)(5) shall apply in determining
whether a taxpayer has an office or other fixed place of business
and whether a sale is attributable to such an office or other
fixed place of business.
(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.
(g) United States resident; nonresident
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection -
(A) United States resident
The term "United States resident" means -
(i) any individual who -
(I) is a United States citizen or a resident alien and
does not have a tax home (as defined in section 911(d)(3))
in a foreign country, or
(II) is a nonresident alien and has a tax home (as so
defined) in the United States, and
(ii) any corporation, trust, or estate which is a United
States person (as defined in section 7701(a)(30)).
(B) Nonresident
The term "nonresident" means any person other than a United
States resident.
(2) Special rules for United States citizens and resident aliens
For purposes of this section, a United States citizen or
resident alien shall not be treated as a nonresident with respect
to any sale of personal property unless an income tax equal to at
least 10 percent of the gain derived from such sale is actually
paid to a foreign country with respect to that gain.
(3) Special rule for certain stock sales by residents of Puerto
Rico
Paragraph (2) shall not apply to the sale by an individual who
was a bona fide resident of Puerto Rico during the entire taxable
year of stock in a corporation if -
(A) such corporation is engaged in the active conduct of a
trade or business in Puerto Rico, and
(B) more than 50 percent of its gross income for the 3-year
period ending with the close of such corporation's taxable year
immediately preceding the year in which such sale occurred was
derived from the active conduct of a trade or business in
Puerto Rico.
For purposes of the preceding sentence, the taxpayer may elect to
treat a corporation and all other corporations which are wholly
owned (directly or indirectly) by such corporation as one
corporation.
(h) Treatment of gains from sale of certain stock or intangibles
and from certain liquidations
(1) In general
In the case of gain to which this subsection applies -
(A) such gain shall be sourced outside the United States, but
(B) subsections (a), (b), and (c) of section 904 and sections
902, 907, and 960 shall be applied separately with respect to
such gain.
(2) Gain to which subsection applies
This subsection shall apply to -
(A) Gain from sale of certain stock or intangibles
Any gain -
(i) which is from the sale of stock in a foreign
corporation or an intangible (as defined in subsection
(d)(2)) and which would otherwise be sourced in the United
States under this section,
(ii) which, under a treaty obligation of the United States
(applied without regard to this section), would be sourced
outside the United States, and
(iii) with respect to which the taxpayer chooses the
benefits of this subsection.
(B) Gain from liquidation in possession
Any gain which is derived from the receipt of any
distribution in liquidation of a corporation -
(i) which is organized in a possession of the United
States, and
(ii) more than 50 percent of the gross income of which
during the 3-taxable year period ending with the close of the
taxable year immediately preceding the taxable year in which
the distribution is received is from the active conduct of a
trade or business in such possession.
(i) Other definitions
For purposes of this section -
(1) Inventory property
The term "inventory property" means personal property described
in paragraph (1) of section 1221(a).
(2) Sale includes exchange
The term "sale" includes an exchange or any other disposition.
(3) Treatment of possessions
Any possession of the United States shall be treated as a
foreign country.
(4) Affiliate
The term "affiliate" means a member of the same affiliated
group (within the meaning of section 1504(a) without regard to
section 1504(b)).
(5) Treatment of partnerships
In the case of a partnership, except as provided in
regulations, this section shall be applied at the partner level.
(j) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purpose of this section,
including regulations -
(1) relating to the treatment of losses from sales of personal
property,
(2) applying the rules of this section to income derived from
trading in futures contracts, forward contracts, options
contracts, and other instruments, and
(3) providing that, subject to such conditions (which may
include provisions comparable to section 877) as may be provided
in such regulations, subsections (e)(1)(B) and (g)(2) shall not
apply for purposes of sections 931, 933, and 936.
(k) Cross references
(1) For provisions relating to the characterization as
dividends for source purposes of gains from the sale of stock
in certain foreign corporations, see section 1248.
(2) For sourcing of income from certain foreign currency
transactions, see section 988.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1211(a), Oct. 22, 1986, 100
Stat. 2533; amended Pub. L. 100-647, title I, Sec. 1012(d)(1)-(6),
(8), (9), (11), (12), Nov. 10, 1988, 102 Stat. 3497-3499; Pub. L.
101-508, title XI, Sec. 11813(b)(18), Nov. 5, 1990, 104 Stat.
1388-555; Pub. L. 103-66, title XIII, Sec. 13239(c), Aug. 10, 1993,
107 Stat. 509; Pub. L. 104-188, title I, Sec. 1704(f)(4)(A), Aug.
20, 1996, 110 Stat. 1880; Pub. L. 106-170, title V, Sec.
532(c)(1)(E), Dec. 17, 1999, 113 Stat. 1930.)
-MISC1-
AMENDMENTS
1999 - Subsec. (i)(1). Pub. L. 106-170 substituted "section
1221(a)" for "section 1221".
1996 - Subsec. (b)(2). Pub. L. 104-188 substituted "863" for
"863(b)".
1993 - Subsec. (b). Pub. L. 103-66 inserted at end
"Notwithstanding the preceding sentence, any income from the sale
of any unprocessed timber which is a softwood and was cut from an
area in the United States shall be sourced in the United States and
the rules of sections 862(a)(6) and 863(b) shall not apply to any
such income. For purposes of the preceding sentence, the term
'unprocessed timber' means any log, cant, or similar form of
timber."
1990 - Subsec. (c)(3)(B). Pub. L. 101-508 substituted "section
168(g)(4)" for "section 48(a)(2)(B)".
1988 - Subsec. (d)(2). Pub. L. 100-647, Sec. 1012(d)(12),
inserted "franchise," after "trade brand,".
Subsec. (d)(4). Pub. L. 100-647, Sec. 1012(d)(1), added par. (4).
Subsec. (e)(1)(A). Pub. L. 100-647, Sec. 1012(d)(2), (9),
substituted "(d)(1)(B) or (3)" for "(d)" and "in a foreign country"
for first reference to "outside the United States".
Subsec. (e)(2)(B). Pub. L. 100-647, Sec. 1012(d)(5), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "Subparagraph (A) shall not apply to -
"(i) any sale of inventory property which is sold for use,
disposition, or consumption outside the United States if an
office or other fixed place of business of the taxpayer outside
the United States materially participated in the sale, or
"(ii) any amount included in gross income under section
951(a)(1)(A)."
Subsec. (f). Pub. L. 100-647, Sec. 1012(d)(4), amended subsec.
(f) generally. Prior to amendment, subsec. (f) read as follows: "If
-
"(1) a United States resident sells stock in an affiliate which
is a foreign corporation,
"(2) such affiliate is engaged in the active conduct of a trade
or business, and
"(3) such sale occurs in the foreign country in which the
affiliate derived more than 50 percent of its gross income for
the 3-year period ending with the close of the affiliate's
taxable year immediately preceding the year during which such
sale occurred,
any gain from such sale shall be sourced outside the United
States."
Subsec. (g)(1)(A)(i). Pub. L. 100-647, Sec. 1012(d)(11), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
"any individual who has a tax home (as defined in section
911(d)(3)) in the United States, and".
Subsec. (g)(1)(A)(ii). Pub. L. 100-647, Sec. 1012(d)(3)(A),
struck out "partnership," after "corporation,".
Subsec. (g)(3). Pub. L. 100-647, Sec. 1012(d)(6)(A), added par.
(3).
Subsec. (h). Pub. L. 100-647, Sec. 1012(d)(8), added subsec. (h)
and redesignated former subsec. (h) as (i).
Pub. L. 100-647, Sec. 1012(d)(3)(B), added par. (5) to subsec.
(h) prior to redesignation as subsec. (i).
Subsec. (i). Pub. L. 100-647, Sec. 1012(d)(8), redesignated
former subsec. (h) as (i). Former subsec. (i) redesignated (j).
Pub. L. 100-647, Sec. 1012(d)(6)(B), added par. (3) to subsec.
(i) prior to redesignation as subsec. (j).
Subsec. (i)(5). Pub. L. 100-647, Sec. 1012(d)(3)(B), added par.
(5) to subsec. (h) prior to redesignation as subsec. (i).
Subsec. (j). Pub. L. 100-647, Sec. 1012(d)(8), redesignated
former subsec. (i) as (j). Former subsec. (j) redesignated (k).
Subsec. (j)(3). Pub. L. 100-647, Sec. 1012(d)(6)(B), added par.
(3) to subsec. (i) prior to redesignation as subsec. (j).
Subsec. (k). Pub. L. 100-647, Sec. 1012(d)(8), redesignated
former subsec. (j) as (k).
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1704(f)(4)(B) of Pub. L. 104-188 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
take effect as if included in the amendments made by section 1211
of the Tax Reform Act of 1986 [Pub. L. 99-514]."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13239(e) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 927, 954,
and 993 of this title] shall apply to sales, exchanges, or other
dispositions after the date of the enactment of this Act [Aug. 10,
1993]."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Dec. 31, 1990, but not applicable to any transition
property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were
previously taken into account under section 46(d) of this title,
and any property described in section 46(b)(2)(C) of this title, as
such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 29 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1012(d)(5) of Pub. L. 100-647 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1987.
Amendment by section 1012(d)(1)-(4), (6), (8), (9), (11), (12) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L.
99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE
Section 1211(c) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this section, amending
sections 861 to 864, 871, 881, and 904 of this title, and enacting
provisions set out below] shall apply to taxable years beginning
after December 31, 1986.
"(2) Special rule for foreign persons. - In the case of any
foreign person other than any controlled foreign corporations
(within the meaning of section 957(a) of the Internal Revenue Code
of 1954 [now 1986]), the amendments made by this section shall
apply to transactions entered into after March 18, 1986."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1211(a) of Pub. L.
99-514 (enacting this section) to the extent application of such
amendment would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
STUDY OF SOURCE RULES FOR SALES OF INVENTORY PROPERTY
Section 1211(d) of Pub. L. 99-514 directed Secretary of the
Treasury or his delegate to conduct a study of source rules for
sales of inventory property and, not later than Sept. 30, 1987 (due
date extended to Jan. 1, 1992, by Pub. L. 101-508, title XI, Sec.
11831(b), Nov. 5, 1990, 104 Stat. 1388-559), to submit to Committee
on Ways and Means of House of Representatives and Committee on
Finance of Senate a report of such study (together with
recommendations he deemed advisable).
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 861, 862, 863, 954 of
this title.
-End-
-CITE-
26 USC PART II - NONRESIDENT ALIENS AND FOREIGN
CORPORATIONS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
-HEAD-
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
-MISC1-
Subpart
A. Nonresident alien individuals.
B. Foreign corporations.
C. Tax on gross transportation income.
D. Miscellaneous provisions.
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Sec. 1212(b)(2), Oct. 22, 1986,
100 Stat. 2538, added item for subpart C and redesignated item for
former subpart C as D.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in section 864 of this title.
-End-
-CITE-
26 USC Subpart A - Nonresident Alien Individuals 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
SUBPART A - NONRESIDENT ALIEN INDIVIDUALS
-MISC1-
Sec.
871. Tax on nonresident alien individuals.
872. Gross income.
873. Deductions.
874. Allowance of deductions and credits.
875. Partnerships; beneficiaries of estates and trusts.
876. Alien residents of Puerto Rico, Guam, American Samoa,
or the Northern Mariana Islands.
877. Expatriation to avoid tax.
878. Foreign educational, charitable, and certain other
exempt organizations.
879. Tax treatment of certain community income in the case
of nonresident alien individuals.
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Sec. 1272(d)(13), Oct. 22,
1986, 100 Stat. 2595, inserted ", Guam, American Samoa, or the
Northern Mariana Islands" in item 876.
1984 - Pub. L. 98-369, div. A, title I, Sec. 139(b)(2), July 18,
1984, 98 Stat. 677, substituted "nonresident alien individuals" for
"a resident or citizen of the United States who is married to a
nonresident alien individual" in item 879.
1976 - Pub. L. 94-455, title X, Sec. 1012(b)(3)(A), Oct. 4, 1976,
90 Stat. 1614, added item 879.
1966 - Pub. L. 89-809, title I, Sec. 103(e)(2), (f)(2), Nov. 13,
1966, 80 Stat. 1551, 1552, inserted "; beneficiaries of estates and
trusts" in item 875, added item 877, and redesignated former item
877 as 878.
-End-
-CITE-
26 USC Sec. 871 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 871. Tax on nonresident alien individuals
-STATUTE-
(a) Income not connected with United States business - 30 percent
tax
(1) Income other than capital gains
Except as provided in subsection (h), there is hereby imposed
for each taxable year a tax of 30 percent of the amount received
from sources within the United States by a nonresident alien
individual as -
(A) interest (other than original issue discount as defined
in section 1273), dividends, rents, salaries, wages, premiums,
annuities, compensations, remunerations, emoluments, and other
fixed or determinable annual or periodical gains, profits, and
income,
(B) gains described in section 631(b) or (c), and gains on
transfers described in section 1235 made on or before October
4, 1966,
(C) in the case of -
(i) a sale or exchange of an original issue discount
obligation, the amount of the original issue discount
accruing while such obligation was held by the nonresident
alien individual (to the extent such discount was not
theretofore taken into account under clause (ii)), and
(ii) a payment on an original issue discount obligation, an
amount equal to the original issue discount accruing while
such obligation was held by the nonresident alien individual
(except that such original issue discount shall be taken into
account under this clause only to the extent such discount
was not theretofore taken into account under this clause and
only to the extent that the tax thereon does not exceed the
payment less the tax imposed by subparagraph (A) thereon),
and
(D) gains from the sale or exchange after October 4, 1966, of
patents, copyrights, secret processes and formulas, good will,
trademarks, trade brands, franchises, and other like property,
or of any interest in any such property, to the extent such
gains are from payments which are contingent on the
productivity, use, or disposition of the property or interest
sold or exchanged,
but only to the extent the amount so received is not effectively
connected with the conduct of a trade or business within the
United States.
(2) Capital gains of aliens present in the United States 183 days
or more
In the case of a nonresident alien individual present in the
United States for a period or periods aggregating 183 days or
more during the taxable year, there is hereby imposed for such
year a tax of 30 percent of the amount by which his gains,
derived from sources within the United States, from the sale or
exchange at any time during such year of capital assets exceed
his losses, allocable to sources within the United States, from
the sale or exchange at any time during such year of capital
assets. For purposes of this paragraph, gains and losses shall be
taken into account only if, and to the extent that, they would be
recognized and taken into account if such gains and losses were
effectively connected with the conduct of a trade or business
within the United States, except that such gains and losses shall
be determined without regard to section 1202 and such losses
shall be determined without the benefits of the capital loss
carryover provided in section 1212. Any gain or loss which is
taken into account in determining the tax under paragraph (1) or
subsection (b) shall not be taken into account in determining the
tax under this paragraph. For purposes of the 183-day requirement
of this paragraph, a nonresident alien individual not engaged in
trade or business within the United States who has not
established a taxable year for any prior period shall be treated
as having a taxable year which is the calendar year.
(3) Taxation of social security benefits
For purposes of this section and section 1441 -
(A) 85 percent of any social security benefit (as defined in
section 86(d)) shall be included in gross income
(notwithstanding section 207 of the Social Security Act), and
(B) section 86 shall not apply.
For treatment of certain citizens of possessions of the
United States, see section 932(c).(!1)
(b) Income connected with United States business - graduated rate
of tax
(1) Imposition of tax
A nonresident alien individual engaged in trade or business
within the United States during the taxable year shall be taxable
as provided in section 1 or 55 on his taxable income which is
effectively connected with the conduct of a trade or business
within the United States.
(2) Determination of taxable income
In determining taxable income for purposes of paragraph (1),
gross income includes only gross income which is effectively
connected with the conduct of a trade or business within the
United States.
(c) Participants in certain exchange or training programs
For purposes of this section, a nonresident alien individual who
(without regard to this subsection) is not engaged in trade or
business within the United States and who is temporarily present in
the United States as a nonimmigrant under subparagraph (F), (J),
(M), or (Q) of section 101(a)(15) of the Immigration and
Nationality Act, as amended (8 U.S.C. 1101(a)(15)(F), (J), (M), or
(Q)), shall be treated as a nonresident alien individual engaged in
trade or business within the United States, and any income
described in the second sentence of section 1441(b) which is
received by such individual shall, to the extent derived from
sources within the United States, be treated as effectively
connected with the conduct of a trade or business within the United
States.
(d) Election to treat real property income as income connected with
United States business
(1) In general
A nonresident alien individual who during the taxable year
derives any income -
(A) from real property held for the production of income and
located in the United States, or from any interest in such real
property, including (i) gains from the sale or exchange of such
real property or an interest therein, (ii) rents or royalties
from mines, wells, or other natural deposits, and (iii) gains
described in section 631(b) or (c), and
(B) which, but for this subsection, would not be treated as
income which is effectively connected with the conduct of a
trade or business within the United States,
may elect for such taxable year to treat all such income as
income which is effectively connected with the conduct of a trade
or business within the United States. In such case, such income
shall be taxable as provided in subsection (b)(1) whether or not
such individual is engaged in trade or business within the United
States during the taxable year. An election under this paragraph
for any taxable year shall remain in effect for all subsequent
taxable years, except that it may be revoked with the consent of
the Secretary with respect to any taxable year.
(2) Election after revocation
If an election has been made under paragraph (1) and such
election has been revoked, a new election may not be made under
such paragraph for any taxable year before the 5th taxable year
which begins after the first taxable year for which such
revocation is effective, unless the Secretary consents to such
new election.
(3) Form and time of election and revocation
An election under paragraph (1), and any revocation of such an
election, may be made only in such manner and at such time as the
Secretary may by regulations prescribe.
[(e) Repealed. Pub. L. 99-514, title XII, Sec. 1211(b)(5), Oct. 22,
1986, 100 Stat. 2536]
(f) Certain annuities received under qualified plans
(1) In general
For purposes of this section, gross income does not include any
amount received as an annuity under a qualified annuity plan
described in section 403(a)(1), or from a qualified trust
described in section 401(a) which is exempt from tax under
section 501(a), if -
(A) all of the personal services by reason of which the
annuity is payable were either -
(i) personal services performed outside the United States
by an individual who, at the time of performance of such
personal services, was a nonresident alien, or
(ii) personal services described in section 864(b)(1)
performed within the United States by such individual, and
(B) at the time the first amount is paid as an annuity under
the annuity plan or by the trust, 90 percent or more of the
employees for whom contributions or benefits are provided under
such annuity plan, or under the plan or plans of which the
trust is a part, are citizens or residents of the United
States.
(2) Exclusion
Income received during the taxable year which would be excluded
from gross income under this subsection but for the requirement
of paragraph (1)(B) shall not be included in gross income if -
(A) the recipient's country of residence grants a
substantially equivalent exclusion to residents and citizens of
the United States; or
(B) the recipient's country of residence is a beneficiary
developing country under title V of the Trade Act of 1974 (19
U.S.C. 2461 et seq.).
(g) Special rules for original issue discount
For purposes of this section and section 881 -
(1) Original issue discount obligation
(A) In general
Except as provided in subparagraph (B), the term "original
issue discount obligation" means any bond or other evidence of
indebtedness having original issue discount (within the meaning
of section 1273).
(B) Exceptions
The term "original issue discount obligation" shall not
include -
(i) Certain short-term obligations
Any obligation payable 183 days or less from the date of
original issue (without regard to the period held by the
taxpayer).
(ii) Tax-exempt obligations
Any obligation the interest on which is exempt from tax
under section 103 or under any other provision of law without
regard to the identity of the holder.
(2) Determination of portion of original issue discount accruing
during any period
The determination of the amount of the original issue discount
which accrues during any period shall be made under the rules of
section 1272 (or the corresponding provisions of prior law)
without regard to any exception for short-term obligations.
(3) Source of original issue discount
Except to the extent provided in regulations prescribed by the
Secretary, the determination of whether any amount described in
subsection (a)(1)(C) is from sources within the United States
shall be made at the time of the payment (or sale or exchange) as
if such payment (or sale or exchange) involved the payment of
interest.
(4) Stripped bonds
The provisions of section 1286 (relating to the treatment of
stripped bonds and stripped coupons as obligations with original
issue discount) shall apply for purposes of this section.
(h) Repeal of tax on interest of nonresident alien individuals
received from certain portfolio debt investments
(1) In general
In the case of any portfolio interest received by a nonresident
individual from sources within the United States, no tax shall be
imposed under paragraph (1)(A) or (1)(C) of subsection (a).
(2) Portfolio interest
For purposes of this subsection, the term "portfolio interest"
means any interest (including original issue discount) which
would be subject to tax under subsection (a) but for this
subsection and which is described in any of the following
subparagraphs:
(A) Certain obligations which are not registered
Interest which is paid on any obligation which -
(i) is not in registered form, and
(ii) is described in section 163(f)(2)(B).
(B) Certain registered obligations
Interest which is paid on an obligation -
(i) which is in registered form, and
(ii) with respect to which the United States person who
would otherwise be required to deduct and withhold tax from
such interest under section 1441(a) receives a statement
(which meets the requirements of paragraph (5)) that the
beneficial owner of the obligation is not a United States
person.
(3) Portfolio interest not to include interest received by
10-percent shareholders
For purposes of this subsection -
(A) In general
The term "portfolio interest" shall not include any interest
described in subparagraph (A) or (B) of paragraph (2) which is
received by a 10-percent shareholder.
(B) 10-Percent shareholder
The term "10-percent shareholder" means -
(i) in the case of an obligation issued by a corporation,
any person who owns 10 percent or more of the total combined
voting power of all classes of stock of such corporation
entitled to vote, or
(ii) in the case of an obligation issued by a partnership,
any person who owns 10 percent or more of the capital or
profits interest in such partnership.
(C) Attribution rules
For purposes of determining ownership of stock under
subparagraph (B)(i) the rules of section 318(a) shall apply,
except that -
(i) section 318(a)(2)(C) shall be applied without regard to
the 50-percent limitation therein,
(ii) section 318(a)(3)(C) shall be applied -
(I) without regard to the 50-percent limitation therein;
and
(II) in any case where such section would not apply but
for subclause (I), by considering a corporation as owning
the stock (other than stock in such corporation) which is
owned by or for any shareholder of such corporation in that
proportion which the value of the stock which such
shareholder owns in such corporation bears to the value of
all stock in such corporation, and
(iii) any stock which a person is treated as owning after
application of section 318(a)(4) shall not, for purposes of
applying paragraphs (2) and (3) of section 318(a), be treated
as actually owned by such person.
Under regulations prescribed by the Secretary, rules similar to
the rules of the preceding sentence shall be applied in
determining the ownership of the capital or profits interest in
a partnership for purposes of subparagraph (B)(ii).
(4) Portfolio interest not to include certain contingent interest
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the term
"portfolio interest" shall not include -
(i) any interest if the amount of such interest is
determined by reference to -
(I) any receipts, sales or other cash flow of the debtor
or a related person,
(II) any income or profits of the debtor or a related
person,
(III) any change in value of any property of the debtor
or a related person, or
(IV) any dividend, partnership distributions, or similar
payments made by the debtor or a related person, or
(ii) any other type of contingent interest that is
identified by the Secretary by regulation, where a denial of
the portfolio interest exemption is necessary or appropriate
to prevent avoidance of Federal income tax.
(B) Related person
The term "related person" means any person who is related to
the debtor within the meaning of section 267(b) or 707(b)(1),
or who is a party to any arrangement undertaken for a purpose
of avoiding the application of this paragraph.
(C) Exceptions
Subparagraph (A)(i) shall not apply to -
(i) any amount of interest solely by reason of the fact
that the timing of any interest or principal payment is
subject to a contingency,
(ii) any amount of interest solely by reason of the fact
that the interest is paid with respect to nonrecourse or
limited recourse indebtedness,
(iii) any amount of interest all or substantially all of
which is determined by reference to any other amount of
interest not described in subparagraph (A) (or by reference
to the principal amount of indebtedness on which such other
interest is paid),
(iv) any amount of interest solely by reason of the fact
that the debtor or a related person enters into a hedging
transaction to manage the risk of interest rate or currency
fluctuations with respect to such interest,
(v) any amount of interest determined by reference to -
(I) changes in the value of property (including stock)
that is actively traded (within the meaning of section
1092(d)) other than property described in section 897(c)(1)
or (g),
(II) the yield on property described in subclause (I),
other than a debt instrument that pays interest described
in subparagraph (A), or stock or other property that
represents a beneficial interest in the debtor or a related
person, or
(III) changes in any index of the value of property
described in subclause (I) or of the yield on property
described in subclause (II), and
(vi) any other type of interest identified by the Secretary
by regulation.
(D) Exception for certain existing indebtedness
Subparagraph (A) shall not apply to any interest paid or
accrued with respect to any indebtedness with a fixed term -
(i) which was issued on or before April 7, 1993, or
(ii) which was issued after such date pursuant to a written
binding contract in effect on such date and at all times
thereafter before such indebtedness was issued.
(5) Certain statements
A statement with respect to any obligation meets the
requirements of this paragraph if such statement is made by -
(A) the beneficial owner of such obligation, or
(B) a securities clearing organization, a bank, or other
financial institution that holds customers' securities in the
ordinary course of its trade or business.
The preceding sentence shall not apply to any statement with
respect to payment of interest on any obligation by any person
if, at least one month before such payment, the Secretary has
published a determination that any statement from such person (or
any class including such person) does not meet the requirements
of this paragraph.
(6) Secretary may provide subsection not to apply in cases of
inadequate information exchange
(A) In general
If the Secretary determines that the exchange of information
between the United States and a foreign country is inadequate
to prevent evasion of the United States income tax by United
States persons, the Secretary may provide in writing (and
publish a statement) that the provisions of this subsection
shall not apply to payments of interest to any person within
such foreign country (or payments addressed to, or for the
account of, persons within such foreign country) during the
period -
(i) beginning on the date specified by the Secretary, and
(ii) ending on the date that the Secretary determines that
the exchange of information between the United States and the
foreign country is adequate to prevent the evasion of United
States income tax by United States persons.
(B) Exception for certain obligations
Subparagraph (A) shall not apply to the payment of interest
on any obligation which is issued on or before the date of the
publication of the Secretary's determination under such
subparagraph.
(7) Registered form
For purposes of this subsection, the term "registered form" has
the same meaning given such term by section 163(f).
(i) Tax not to apply to certain interest and dividends
(1) In general
No tax shall be imposed under paragraph (1)(A) or (1)(C) of
subsection (a) on any amount described in paragraph (2).
(2) Amounts to which paragraph (1) applies
The amounts described in this paragraph are as follows:
(A) Interest on deposits, if such interest is not effectively
connected with the conduct of a trade or business within the
United States.
(B) A percentage of any dividend paid by a domestic
corporation meeting the 80-percent foreign business
requirements of section 861(c)(1) equal to the percentage
determined for purposes of section 861(c)(2)(A).
(C) Income derived by a foreign central bank of issue from
bankers' acceptances.
(3) Deposits
For purposes of paragraph (2), the term "deposits" means
amounts which are -
(A) deposits with persons carrying on the banking business,
(B) deposits or withdrawable accounts with savings
institutions chartered and supervised as savings and loan or
similar associations under Federal or State law, but only to
the extent that amounts paid or credited on such deposits or
accounts are deductible under section 591 (determined without
regard to sections 265 and 291) in computing the taxable income
of such institutions, and
(C) amounts held by an insurance company under an agreement
to pay interest thereon.
(j) Exemption for certain gambling winnings
No tax shall be imposed under paragraph (1)(A) of subsection (a)
on the proceeds from a wager placed in any of the following games:
blackjack, baccarat, craps, roulette, or big-6 wheel. The preceding
sentence shall not apply in any case where the Secretary determines
by regulation that the collection of the tax is administratively
feasible.
(k) Cross references
(1) For tax treatment of certain amounts distributed by the
United States to nonresident alien individuals, see section
402(e)(2).
(2) For taxation of nonresident alien individuals who are
expatriate United States citizens, see section 877.
(3) For doubling of tax on citizens of certain foreign
countries, see section 891.
(4) For adjustment of tax in case of nationals or residents
of certain foreign countries, see section 896.
(5) For withholding of tax at source on nonresident alien
individuals, see section 1441.
(6) For election to treat married nonresident alien
individual as resident of United States in certain cases, see
subsections (g) and (h) of section 6013.
(7) For special tax treatment of gain or loss from the
disposition by a nonresident alien individual of a United
States real property interest, see section 897.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 278; Pub. L. 85-866, title I,
Secs. 40(a), 41(a), Sept. 2, 1958, 72 Stat. 1638, 1639; Pub. L.
86-437, Sec. 2(b), Apr. 22, 1960, 74 Stat. 79; Pub. L. 87-256, Sec.
110(b), Sept. 21, 1961, 75 Stat. 535; Pub. L. 88-272, title I, Sec.
113(b), title II, Sec. 201(d)(12), Feb. 26, 1964, 78 Stat. 24, 32;
Pub. L. 89-809, title I, Sec. 103(a)(1), Nov. 13, 1966, 80 Stat.
1547; Pub. L. 92-178, title III, Sec. 313(a), (b), Dec. 10, 1971,
85 Stat. 526, 527; Pub. L. 93-406, title II, Sec. 2005(c)(8), Sept.
2, 1974, 88 Stat. 992; Pub. L. 94-455, title X, Sec. 1012(a)(2),
title XIX, Secs. 1901(b)(3)(I), 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1613, 1793, 1834; Pub. L. 95-600, title IV, Secs. 401(b)(3),
421(e)(4), Nov. 6, 1978, 92 Stat. 2867, 2876; Pub. L. 96-222, title
I, Sec. 104(a)(4)(H)(v), Apr. 1, 1980, 94 Stat. 217; Pub. L.
96-499, title XI, Sec. 1122(c)(1), Dec. 5, 1980, 94 Stat. 2687;
Pub. L. 96-605, title II, Sec. 227(a), Dec. 28, 1980, 94 Stat.
3530; Pub. L. 97-34, title VII, Sec. 725(c)(1), Aug. 13, 1981, 95
Stat. 346; Pub. L. 98-21, title I, Sec. 121(c)(1), title III, Sec.
335(b)(2)(B), Apr. 20, 1983, 97 Stat. 82, 130; Pub. L. 98-369, div.
A, title I, Secs. 42(a)(9), 127(a), 128(a), title IV, Sec.
412(b)(1), July 18, 1984, 98 Stat. 557, 648, 653, 792; Pub. L.
99-272, title XII, Sec. 12103(b), Apr. 7, 1986, 100 Stat. 285; Pub.
L. 99-514, title III, Sec. 301(b)(9), title XII, Secs. 1211(b)(4),
(5), 1214(c)(1), title XVIII, Sec. 1810(d)(1)(A), (2), (3)(A), (B),
(e)(2)(A), Oct. 22, 1986, 100 Stat. 2217, 2536, 2542, 2825, 2826;
Pub. L. 100-647, title I, Sec. 1001(d)(2)(B), title VI, Sec.
6134(a)(1), Nov. 10, 1988, 102 Stat. 3350, 3721; Pub. L. 102-318,
title V, Sec. 521(b)(28)-(30), July 3, 1992, 106 Stat. 312; Pub. L.
103-66, title XIII, Secs. 13113(d)(5), 13237(a)(1), (c)(1), Aug.
10, 1993, 107 Stat. 430, 506, 508; Pub. L. 103-296, title III, Sec.
320(a)(1)(A), Aug. 15, 1994, 108 Stat. 1535; Pub. L. 103-465, title
VII, Sec. 733(a), Dec. 8, 1994, 108 Stat. 5006; Pub. L. 104-188,
title I, Secs. 1401(b)(10), 1954(b)(1), Aug. 20, 1996, 110 Stat.
1789, 1928; Pub. L. 105-206, title VI, Sec. 6023(10), July 22,
1998, 112 Stat. 825; Pub. L. 106-170, title V, Sec. 532(b)(2), Dec.
17, 1999, 113 Stat. 1930; Pub. L. 106-554, Sec. 1(a)(7) [title III,
Sec. 319(11)], Dec. 21, 2000, 114 Stat. 2763, 2763A-646.)
-REFTEXT-
REFERENCES IN TEXT
Section 207 of the Social Security Act, referred to in subsec.
(a)(3)(A), is classified to section 407 of Title 42, The Public
Health and Welfare.
Section 932(c), referred to in subsec. (a)(3), was repealed and a
new section 932(c) of this title, which does not relate to taxation
of social security benefits, was enacted by Pub. L. 99-514, title
XII, Secs. 1272(d)(1), 1274(a), Oct. 22, 1986, 100 Stat. 2594,
2596.
The Trade Act of 1974, referred to in subsec. (f)(2)(B), is Pub.
L. 93-618, Jan. 3, 1975, 88 Stat. 1978, as amended. Title V of the
Trade Act of 1974 is classified generally to subchapter V (Sec.
2461 et seq.) of chapter 12 of Title 19, Customs Duties. For
complete classification of this Act to the Code, see section 2101
of Title 19 and Tables.
-MISC1-
AMENDMENTS
2000 - Subsec. (f)(2)(B). Pub. L. 106-554 inserted opening
parenthesis before "19 U.S.C.".
1999 - Subsec. (h)(4)(C)(iv). Pub. L. 106-170 substituted "to
manage" for "to reduce".
1998 - Subsec. (f)(2)(B). Pub. L. 105-206 substituted "19 U.S.C.
2461 et seq.)" for "(19 U.S.C. 2462)".
1996 - Subsec. (b)(1). Pub. L. 104-188, Sec. 1401(b)(10),
substituted "section 1 or 55" for "section 1, 55, or 402(d)(1)".
Subsec. (f)(2)(B). Pub. L. 104-188, Sec. 1954(b)(1), substituted
"under title V" for "within the meaning of section 502".
1994 - Subsec. (a)(3)(A). Pub. L. 103-465 substituted "85
percent" for "one-half".
Subsec. (c). Pub. L. 103-296 substituted "(J), (M), or (Q)" for
"(J), or (M)" in two places.
1993 - Subsec. (a)(2). Pub. L. 103-66, Sec. 13113(d)(5), inserted
"such gains and losses shall be determined without regard to
section 1202 and" after "except that" in second sentence.
Subsec. (h)(2)(B)(ii). Pub. L. 103-66, Sec. 13237(c)(1),
substituted "paragraph (5)" for "paragraph (4)".
Subsec. (h)(4) to (7). Pub. L. 103-66, Sec. 13237(a)(1), added
par. (4) and redesignated former pars. (4) to (6) as (5) to (7),
respectively.
1992 - Subsec. (a)(1)(B). Pub. L. 102-318, Sec. 521(b)(28),
struck out "402(a)(2), 403(a)(2), or" before "631(b)".
Subsec. (b)(1). Pub. L. 102-318, Sec. 521(b)(29), substituted
"402(d)(1)" for "402(e)(1)".
Subsec. (k)(1). Pub. L. 102-318, Sec. 521(b)(30), substituted
"402(e)(2)" for "402(a)(4)".
1988 - Subsec. (c). Pub. L. 100-647, Sec. 1001(d)(2)(B),
substituted "the second sentence of section 1441(b)" for "section
1441(b)(1) or (2)", and "(F), (J), or (M)" for "(F) or (J)" in two
places.
Subsecs. (j), (k). Pub. L. 100-647, Sec. 6134(a)(1), added
subsec. (j) and redesignated former subsec. (j) as (k).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1810(d)(3)(A),
substituted "subsection (h)" for "subsection (i)" in introductory
provisions.
Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 1810(e)(2)(A), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: "in the case of -
"(i) a sale or exchange of an original issue discount
obligation, the amount of any gain not in excess of the original
issue discount accruing while such obligation was held by the
nonresident alien individual (to the extent such discount was not
theretofore taken into account under clause (ii)), and
"(ii) the payment of interest on an original issue discount
obligation, an amount equal to the original issue discount
accrued on such obligation since the last payment of interest
thereon (except that such original issue discount shall be taken
into account under this clause only to the extent that the tax
thereon does not exceed the interest payment less the tax imposed
by subparagraph (A) thereon), and".
Subsec. (a)(1)(D). Pub. L. 99-514, Sec. 1211(b)(4), struck out
"or from payments which are treated as being so contingent under
subsection (e)," after "sold or exchanged,".
Subsec. (a)(2). Pub. L. 99-514, Sec. 301(b)(9), struck out "such
gains and losses shall be determined without regard to section 1202
(relating to deduction for capital gains) and" after "United
States, except that".
Subsec. (a)(3). Pub. L. 99-272 inserted at end "For treatment of
certain citizens of possessions of the United States, see section
932(c)."
Subsec. (e). Pub. L. 99-514, Sec. 1211(b)(5), struck out subsec.
(e) which related to gains from sale or exchange of certain
intangible property, par. (1) treating payments as contingent on
use, etc., and par. (2) containing source rule.
Subsec. (h)(2). Pub. L. 99-514, Sec. 1810(d)(1)(A), (3)(B),
inserted "which would be subject to tax under subsection (a) but
for this subsection and" in introductory provisions and substituted
"receives a statement" for "has received a statement" in subpar.
(B)(ii).
Subsec. (h)(3)(C)(ii), (iii). Pub. L. 99-514, Sec. 1810(d)(2),
added cl. (ii) and redesignated former cl. (ii) as (iii).
Subsecs. (i), (j). Pub. L. 99-514, Sec. 1214(c)(1), added subsec.
(i) and redesignated former subsec. (i) as (j).
1984 - Subsec. (a)(1). Pub. L. 98-369, Sec. 127(a)(2),
substituted "Except as provided in subsection (i), there" for
"There".
Subsec. (a)(1)(A). Pub. L. 98-369, Sec. 42(a)(9), substituted
"section 1273" for "section 1232(b)".
Subsec. (a)(1)(C). Pub. L. 98-369, Sec. 128(a)(1), amended
subpar. (C) generally, substituting in cl. (i), "a sale or exchange
of an original issue discount obligation, the amount of any gain
not in excess of the original issue discount accruing while such
obligation was held by the nonresident alien individual (to the
extent such discount was not theretofore taken into account under
clause (ii)), and" for "bonds or other evidences of indebtedness
issued after September 28, 1965, and before April 1, 1972, amounts
which under section 1232(a)(2)(B) are considered as ordinary
income, and, in the case of corporate obligations issued after May
27, 1969, and before April 1, 1972, amounts which would be so
considered but for the fact the obligations were issued after May
27, 1969,", substituting in cl. (ii), "the payment of interest on
an original issue discount obligation, an amount equal to the
original issue discount accrued on such obligation since the last
payment of interest thereon (except that such original issue
discount shall be taken into account under this clause only to the
extent that the tax thereon does not exceed the interest payment
less the tax imposed by subparagraph (A) thereon), and" for "bonds
or other evidences of indebtedness issued after March 31, 1972, and
payable more than 6 months from the date of original issue (without
regard to the period held by the taxpayer), amounts which under
section 1232(a)(2)(B) would be considered as ordinary income but
for the fact such obligations were issued after May 27, 1969, and",
and striking out cl. (iii) which required that in the case of the
payment of interest on an obligation described in cl. (ii), an
amount equal to the original issue discount, but not in excess of
such interest less the tax imposed by subpar. (A) thereon, accrued
on such obligation since the last payment of interest thereon, be
included for purpose of the 30 percent tax.
Subsec. (g). Pub. L. 98-369, Sec. 128(a)(2), added subsec. (g).
Former subsec. (g), relating to cross references, redesignated (h).
Subsec. (g)(6) to (8). Pub. L. 98-369, Sec. 412(b)(1), amended
subsec. (g), relating to cross references, by striking out par. (6)
referring to section 6015(j) for the requirement of making a
declaration of estimated tax by certain nonresident alien
individuals and redesignating pars. (7) and (8) as (6) and (7),
respectively.
Subsec. (h). Pub. L. 98-369, Sec. 127(a), added subsec. (h).
Former subsec. (h), relating to cross references, redesignated (i).
Pub. L. 98-369, Sec. 128(a)(2), redesignated subsec. (g),
relating to cross references, as (h).
Subsec. (i). Pub. L. 98-369, Sec. 127(a)(1), redesignated subsec.
(h), relating to cross references, as (i).
1983 - Subsec. (a)(3). Pub. L. 98-21, Sec. 121(c)(1), added par.
(3).
Subsec. (a)(3)(A). Pub. L. 98-21, Sec. 335(b)(2)(B), inserted
"(notwithstanding section 207 of the Social Security Act)" after
"income".
1981 - Subsec. (g)(6). Pub. L. 97-34 substituted "6015(j)" for
"6015(i)".
1980 - Subsec. (b)(1). Pub. L. 96-222 substituted "55" for
"section 55".
Subsec. (f). Pub. L. 96-605 designated existing provision as par.
(1), inserted heading "In general" and redesignated par. (1) as
subpar. (A), cls. (A) and (B) of subpar. (A) as so redesignated as
cls. (i) and (ii), and par. (2) as subpar. (B), and added par. (2).
Subsec. (g)(8). Pub. L. 96-499 added par. (8).
1978 - Subsec. (b)(1). Pub. L. 95-600, Secs. 401(b)(3),
421(e)(4), substituted "section 1, section 55, or 402(e)(1)" for
"section 1, 402(e)(1), or 1201(b)".
1976 - Subsec. (a)(1)(C)(i), (ii). Pub. L. 94-455, Sec.
1901(b)(3)(I), substituted "ordinary income" for "gain from the
sale or exchange of property which is not a capital asset".
Subsec. (d). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary", each time appearing.
Subsec. (g)(7). Pub. L. 94-455, Sec. 1012(a)(2), added par. (7).
1974 - Subsec. (b)(1). Pub. L. 93-406 inserted reference to
section 402(e)(1).
1971 - Subsec. (a)(1)(A). Pub. L. 92-178, Sec. 313(a), inserted
"(other than original issue discount as defined in section
1232(b))" after "interest".
Subsec. (a)(1)(C). Pub. L. 92-178, Sec. 313(b), designated
existing provisions as cl. (i), inserted "and before April 1,
1972," after "September 28, 1965,", substituted "section
1232(a)(2)(B)" for "section 1232", and inserted ", in the case of
corporate obligations issued after May 27, 1969, and before April
1, 1972, amounts which would be so considered but for the fact the
obligations were issued after May 27, 1969,", and added cls. (ii)
and (iii).
1966 - Subsecs. (a), (b). Pub. L. 89-809 consolidated the
substance of former subsecs. (a) to (c) and, as part of the
consolidation, revised the overall income tax treatment of
nonresident alien individuals by substituting provisions dividing
their income for tax purposes into two basic groups according to
whether or not the income is effectively connected with a United
States trade or business for provisions calling for different tax
treatment based upon whether or not they are, or are not, engaged
in a trade or business in the United States, with a further
breakdown of those not engaged in trade or business in the United
States as to whether their income is over or under $21,200.
Subsec. (c). Pub. L. 89-809 redesignated subsec. (d) as (c) and
inserted provisions that any income described in section 1441(b)(1)
or (2) which is received by such individual shall, to the extent
derived from sources within the United States, be treated as
effectively connected with the conduct of a trade or business
within the United States. Substance of former subsec. (c) revised
and incorporated into subsecs. (a) and (b).
Subsecs. (d) to (f). Pub. L. 89-809 added subsecs. (d) to (f) and
redesignated former subsecs. (d) and (e) as (c) and (g),
respectively.
Subsec. (g). Pub. L. 89-809 redesignated former subsec. (e) as
(g), added pars. (2) and (4) to (6), and redesignated former pars.
(1) and (2) as (3) and (1), respectively.
1964 - Subsec. (a). Pub. L. 88-272, Sec. 113(b)(2), substituted
"30 percent tax" for "and gross income of not more than $15,400" in
heading.
Subsec. (b). Pub. L. 88-272, Secs. 113(b)(1), (3), 201(d)(12),
substituted "$19,000 in the case of a taxable year beginning in
1964 or more than $21,200 in the case of a taxable year beginning
after 1964" for "$15,400", "the credit under section 35" for "the
sum of the credits under sections 34 and 35" in text, and "Regular
tax" for "and gross income of more than $15,400" in heading.
1961 - Subsecs. (d), (e). Pub. L. 87-256 added subsec. (d) and
redesignated former subsec. (d) as (e).
1960 - Subsec. (d). Pub. L. 86-437 substituted "Cross references"
for "Doubling of tax" in heading, and inserted cross reference to
section 402(a)(4).
1958 - Subsec. (a)(1). Pub. L. 85-866, Sec. 40(a), inserted
"section 403(a)(2)," after "section 402(a)(2),".
Subsec. (b). Pub. L. 85-866, Sec. 41(a), inserted last par.
covering former provisions of par. (3), which was struck out by the
amendment, and containing new provisions with references to credits
under section 34 and 35 and exclusion under section 116 of this
title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1401(b)(10) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1999, with retention of
certain transition rules, see section 1401(c) of Pub. L. 104-188,
set out as a note under section 402 of this title.
Amendment by section 1954(b)(1) of Pub. L. 104-188 applicable to
articles entered on or after Oct. 1, 1996, with provisions relating
to retroactive application, see section 1953 of Pub. L. 104-188,
set out as an Effective Date note under section 2461 of Title 19,
Customs Duties.
EFFECTIVE DATE OF 1994 AMENDMENTS
Section 733(b) of Pub. L. 103-465 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
benefits paid after December 31, 1994, in taxable years ending
after such date."
Section 320(c) of Pub. L. 103-296 provided that: "The amendments
made by this subsection [probably means this section, which amended
this section, sections 872, 1441, 3121, 3231, 3306, and 7701 of
this title, and section 410 of Title 42, The Public Health and
Welfare] shall take effect with the calendar quarter following the
date of the enactment of this Act [Aug. 15, 1994]."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13113(d)(5) of Pub. L. 103-66 applicable to
stock issued after Aug. 10, 1993, see section 13113(e) of Pub. L.
103-66, set out as a note under section 53 of this title.
Section 13237(d) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 881, 1441,
1442, and 2105 of this title] shall apply to interest received
after December 31, 1993; except that the amendments made by
subsection (b) [amending section 2105 of this title] shall apply to
the estates of decedents dying after December 31, 1993."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1001(d)(2)(B) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6134(b) of Pub. L. 100-647 provided that: "The amendments
made by subsection (a) [amending this section and section 1441 of
this title] shall take effect on the date of the enactment of this
Act [Nov. 10, 1988]."
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 301(b)(9) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
Amendment by section 1211(b)(4), (5) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Amendment by section 1214(c)(1) of Pub. L. 99-514 applicable to
payments made in taxable year of payor beginning after Dec. 31,
1986, except as otherwise provided, see section 1214(d) of Pub. L.
99-514, as amended, set out as a note under section 861 of this
title.
Amendment by section 1810(d)(1)(A), (2), (3)(A), (B), (e)(2)(A)
of Pub. L. 99-514 effective, except as otherwise provided, as if
included in the provisions of the Tax Reform Act of 1984, Pub. L.
98-369, div. A, to which such amendment relates, see section 1881
of Pub. L. 99-514, set out as a note under section 48 of this
title.
Section 12103(c) of Pub. L. 99-272 provided that: "The amendments
made by this section [amending this section and section 932 of this
title] shall apply to benefits received after December 31, 1983, in
taxable years ending after such date."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 42(a)(9) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Section 127(g) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 100-647, title VI,
Sec. 6128(a), Nov. 10, 1988, 102 Stat. 3716, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 163, 864, 881, 1441, 1442, and 2105 of this
title] shall apply to interest received after the date of the
enactment of this Act [July 18, 1984] with respect to obligations
issued after such date, in taxable years ending after such date.
"(2) Subsection (d). - The amendment made by subsection (d)
[amending section 2105 of this title] shall apply to obligations
issued after the date of the enactment of this Act [July 18, 1984]
with respect to the estates of decedents dying after such date.
"(3) Special rule for certain united states affiliate
obligations. -
"(A) In general. - For purposes of the Internal Revenue Code of
1986 [formerly I.R.C. 1954], payments of interest on a United
States affiliate obligation to an applicable CFC in existence on
or before June 22, 1984, shall be treated as payments to a
resident of the country in which the applicable CFC is
incorporated.
"(B) Exception. - Subparagraph (A) shall not apply to any
applicable CFC which did not meet requirements which are based on
the principles set forth in Revenue Rulings 69-501, 69-377,
70-645, and 73-110 as such principles are applied in Revenue
Ruling 86-6, except that the maximum debt-to-equity ratio
described in such Revenue Rulings shall be increased from 5-to-1
to 25-to-1.
"(C) Definitions. -
"(i) The term 'applicable CFC' has the meaning given such
term by section 121(b)(2)(D) of this Act [set out as a note
under section 904 of this title], except that such section
shall be applied by substituting 'the date of interest payment'
for 'March 31, 1984,' in clause (i) thereof.
"(ii) The term 'United States affiliate obligation' means an
obligation described in section 121(b)(2)(F) of this Act [set
out as a note under section 904 of this title] which was issued
before June 22, 1984."
[Section 6128(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending section 127(g) of Pub. L. 98-369,
set out above] shall apply to taxable years ending after the date
of the enactment of this Act [Nov. 10, 1988]."]
Section 128(d) of Pub. L. 98-369 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
163 and 881 of this title] shall apply to payments made on or after
the 60th day after the date of the enactment of this Act [July 18,
1984] with respect to obligations issued after March 31, 1972.
"(2) Subsection (c). - The amendment made by subsection (c)
[amending section 163 of this title] shall apply to obligations
issued after June 9, 1984."
Amendment by section 412(b)(1) of Pub. L. 98-369 applicable with
respect to taxable years beginning after Dec. 31, 1984, see section
414(a)(1) of Pub. L. 98-369, set out as a note under section 6654
of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by section 121(c)(1) of Pub. L. 98-21 applicable to
benefits received after Dec. 31, 1983, in taxable years ending
after such date, except for any portion of a lump-sum payment of
social security benefits received after Dec. 31, 1983, if the
generally applicable payment date for such portion was before Jan.
1, 1984, see section 121(g) of Pub. L. 98-21, set out as an
Effective Date note under section 86 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 725(d) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section and sections 6015,
6153, 6654, and 7701 of this title] shall apply to estimated tax
for taxable years beginning after December 31, 1980."
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 227(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts received after July 1, 1979."
Amendment by Pub. L. 96-499 applicable to dispositions after June
18, 1980, see section 1125(a) of Pub. L. 96-499, set out as an
Effective Date note under section 897 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 401(b)(3) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 401(c) of
Pub. L. 95-600, set out as a note under section 1201 of this title.
Amendment by section 421(e)(4) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 421(g) of
Pub. L. 95-600, set out as a note under section 5 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1012(a)(2) of Pub. L. 94-455 applicable to
taxable years ending on or after Dec. 31, 1975, see section 1012(d)
of Pub. L. 94-455, set out as a note under section 6013 of this
title.
Amendment by section 1901(b)(3)(I) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by Pub. L. 93-406 applicable only with respect to
distributions or payments made after Dec. 31, 1973, in taxable
years beginning after Dec. 31, 1973, see section 2005(d) of Pub. L.
93-406, set out as a note under section 402 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 313(f) of Pub. L. 92-178, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments to section 871 and 881 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] made by this section shall apply with
respect to taxable years beginning after December 31, 1966. The
amendments to sections 1441 and 1442 of such Code made by this
section shall apply with respect to payments occurring on or after
April 1, 1972."
EFFECTIVE DATE OF 1966 AMENDMENT
Section 103(n) of Pub. L. 89-809 provided that:
"(1) The amendments made by this section (other than the
amendments made by subsections (h), (i), and (k)) [amending this
section and sections 1, 116, 154, 872 to 874, 875, 932, 6015, and
7701 of this title, redesignating section 877 as 878, enacting
section 877 of this title, and repealing section 1493 of this
title] shall apply with respect to taxable years beginning after
December 31, 1966.
"(2) The amendments made by subsection (h) [amending section 1441
of this title] shall apply with respect to payments made in taxable
years of recipients beginning after December 31, 1966.
"(3) The amendments made by subsection (i) [amending section 1461
of this title] shall apply with respect to payments occurring after
December 31, 1966.
"(4) The amendments made by subsection (k) [amending section 3401
of this title] shall apply with respect to remuneration paid after
December 31, 1966."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 113(b)(1) of Pub. L. 88-272 effective,
except for purposes of section 21 of this title, with respect to
taxable years beginning after Dec. 31, 1963, see section 131 of
Pub. L. 88-272, set out as a note under section 1 of this title.
Amendment by section 201(d)(12) of Pub. L. 88-272 applicable with
respect to dividends received after Dec. 31, 1964, in taxable years
ending after such date, see section 201(e) of Pub. L. 88-272, set
out as a note under section 37 of this title.
EFFECTIVE DATE OF 1961 AMENDMENT
Amendment by Pub. L. 87-256 applicable to taxable years beginning
after Dec. 31, 1961, see section 110(h)(1) of Pub. L. 87-256, set
out as a note under section 117 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-437 applicable only with respect to
taxable years beginning after Dec. 31, 1959, see section 3 of Pub.
L. 86-437, set out as a note under section 402 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 40(c) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) [amending this section] shall apply only
with respect to taxable years ending after the date of the
enactment of this Act [Sept. 2, 1958]. The amendments made by
subsection (b) [amending section 1441 of this title] shall take
effect on the day following the date of the enactment of this Act
[Sept. 2, 1958]."
Section 41(c) of Pub. L. 85-866 provided that: "The amendments
made by this section [amending this section and section 35 of this
title] shall apply only with respect to taxable years beginning
after December 31, 1957."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendments by sections 1211(b)(4), (5) and
1214(c)(1) of Pub. L. 99-514 to the extent application of such
amendments would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L.
104-188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 2, 5, 26, 32, 306, 860G,
861, 864, 873, 877, 881, 882, 884, 887, 891, 897, 906, 1235, 1276,
1278, 1441, 1442, 1444, 1445, 2105, 6012, 6049, 7701 of this title;
title 48 section 1421i.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 872 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 872. Gross income
-STATUTE-
(a) General rule
In the case of a nonresident alien individual, except where the
context clearly indicates otherwise, gross income includes only -
(1) gross income which is derived from sources within the
United States and which is not effectively connected with the
conduct of a trade or business within the United States, and
(2) gross income which is effectively connected with the
conduct of a trade or business within the United States.
(b) Exclusions
The following items shall not be included in gross income of a
nonresident alien individual, and shall be exempt from taxation
under this subtitle:
(1) Ships operated by certain nonresidents
Gross income derived by an individual resident of a foreign
country from the international operation of a ship or ships if
such foreign country grants an equivalent exemption to individual
residents of the United States.
(2) Aircraft operated by certain nonresidents
Gross income derived by an individual resident of a foreign
country from the international operation of aircraft if such
foreign country grants an equivalent exemption to individual
residents of the United States.
(3) Compensation of participants in certain exchange or training
programs
Compensation paid by a foreign employer to a nonresident alien
individual for the period he is temporarily present in the United
States as a nonimmigrant under subparagraph (F), (J), or (Q) of
section 101(a)(15) of the Immigration and Nationality Act, as
amended. For purposes of this paragraph, the term "foreign
employer" means -
(A) a nonresident alien individual, foreign partnership, or
foreign corporation, or
(B) an office or place of business maintained in a foreign
country or in a possession of the United States by a domestic
corporation, a domestic partnership, or an individual who is a
citizen or resident of the United States.
(4) Certain bond income of residents of the Ryukyu Islands or the
Trust Territory of the Pacific Islands
Income derived by a nonresident alien individual from a series
E or series H United States savings bond, if such individual
acquired such bond while a resident of the Ryukyu Islands or the
Trust Territory of the Pacific Islands.
(5) Certain rental income
Income to which paragraphs (1) and (2) apply shall include
income which is derived from the rental on a full or bareboat
basis of a ship or ships or aircraft, as the case may be.
(6) Application to different types of transportation
The Secretary may provide that this subsection be applied
separately with respect to income from different types of
transportation.
(7) Treatment of possessions
To the extent provided in regulations, a possession of the
United States shall be treated as a foreign country for purposes
of this subsection.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 280; Pub. L. 87-256, Sec.
110(c), Sept. 21, 1961, 75 Stat. 536; Pub. L. 89-809, title I, Sec.
103(b), Nov. 13, 1966, 80 Stat. 1550; Pub. L. 99-514, title XII,
Sec. 1212(c)(1), (2), Oct. 22, 1986, 100 Stat. 2538; Pub. L.
100-647, title I, Sec. 1012(e)(2)(B), (5), (s)(2)(A), Nov. 10,
1988, 102 Stat. 3500, 3527; Pub. L. 101-239, title VII, Sec.
7811(i)(8)(C), Dec. 19, 1989, 103 Stat. 2411; Pub. L. 103-296,
title III, Sec. 320(a)(2), Aug. 15, 1994, 108 Stat. 1535.)
-REFTEXT-
REFERENCES IN TEXT
Section 101 of the Immigration and Nationality Act, referred to
in subsec. (b)(3), is classified to section 1101 of Title 8, Aliens
and Nationality.
-MISC1-
AMENDMENTS
1994 - Subsec. (b)(3). Pub. L. 103-296 substituted "(F), (J), or
(Q)" for "(F) or (J)".
1989 - Subsec. (b)(7). Pub. L. 101-239 added par. (7).
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1012(s)(2)(A), inserted
", except where the context clearly indicates otherwise" after
"individual".
Subsec. (b)(1), (2). Pub. L. 100-647, Sec. 1012(e)(2)(B), (5),
substituted "to individual residents of the United States" for "to
citizens of the United States and to corporations organized in the
United States" and "international operation" for "operation".
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1212(c)(1), added
par. (1) and struck out former par. (1), ships under foreign flag,
which read as follows: "Earnings derived from the operation of a
ship or ships documented under the laws of a foreign country which
grants an equivalent exemption to citizens of the United States and
to corporations organized in the United States."
Subsec. (b)(2). Pub. L. 99-514, Sec. 1212(c)(1), added par. (2)
and struck out former par. (2), aircraft of foreign registry, which
read as follows: "Earnings derived from the operation of aircraft
registered under the laws of a foreign country which grants an
equivalent exemption to citizens of the United States and to
corporations organized in the United States."
Subsec. (b)(5), (6). Pub. L. 99-514, Sec. 1212(c)(2), added pars.
(5) and (6).
1966 - Subsec. (a). Pub. L. 89-809, Sec. 103(b)(1), limited the
inclusion of gross income which is derived from sources within the
United States to such income which is not effectively connected
with the conduct of a trade or business within the United States
and inserted provision including gross income without the
limitation as to source which is effectively connected with the
conduct of a trade or business within the United States.
Subsec. (b)(3)(B). Pub. L. 89-809, Sec. 103(b)(2), substituted
"by a domestic corporation, a domestic partnership, or an
individual who is a citizen or resident of the United States" for
"by a domestic corporation".
Subsec. (b)(4). Pub. L. 89-809, Sec. 102(b)(3), added par. (4).
1961 - Subsec. (b)(3). Pub. L. 87-256 added par. (3).
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-296 effective with calendar quarter
following Aug. 15, 1994, see section 320(c) of Pub. L. 103-296, set
out as a note under section 871 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1212(f) of Pub. L. 99-514, set out
as a note under section 863 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 103(n)(1) of Pub.
L. 89-809, set out as a note under section 871 of this title.
EFFECTIVE DATE OF 1961 AMENDMENT
Amendment by Pub. L. 87-256 applicable to taxable years beginning
after Dec. 31, 1961, see section 110(h)(1) of Pub. L. 87-256, set
out as a note under section 117 of this title.
-TRANS-
TERMINATION OF TRUST TERRITORY OF THE PACIFIC ISLANDS
For termination of Trust Territory of the Pacific Islands, see
note set out preceding section 1681 of Title 48, Territories and
Insular Possessions.
-MISC2-
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1212(c)(1), (2) of
Pub. L. 99-514 to the extent application of such amendment would be
contrary to any treaty obligation of the United States in effect on
Oct. 22, 1986, with provision that for such purposes any amendment
by title I of Pub. L. 100-647 be treated as if it had been included
in the provision of Pub. L. 99-514 to which such amendment relates,
see section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 877, 883, 7701 of this
title.
-End-
-CITE-
26 USC Sec. 873 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 873. Deductions
-STATUTE-
(a) General rule
In the case of a nonresident alien individual, the deductions
shall be allowed only for purposes of section 871(b) and (except as
provided by subsection (b)) only if and to the extent that they are
connected with income which is effectively connected with the
conduct of a trade or business within the United States; and the
proper apportionment and allocation of the deductions for this
purpose shall be determined as provided in regulations prescribed
by the Secretary.
(b) Exceptions
The following deductions shall be allowed whether or not they are
connected with income which is effectively connected with the
conduct of a trade or business within the United States:
(1) Losses
The deduction allowed by section 165 for casualty or theft
losses described in paragraph (2) or (3) of section 165(c), but
only if the loss is of property located within the United States.
(2) Charitable contributions
The deduction for charitable contributions and gifts allowed by
section 170.
(3) Personal exemption
The deduction for personal exemptions allowed by section 151,
except that only one exemption shall be allowed under section 151
unless the taxpayer is a resident of a contiguous country or is a
national of the United States.
(c) Cross reference
For rule that certain foreign taxes are not to be taken into
account in determining deduction or credit, see section
906(b)(1).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 280; Pub. L. 89-809, title I,
Sec. 103(c)(1), Nov. 13, 1966, 80 Stat. 1550; Pub. L. 92-580, Sec.
1(b), Oct. 27, 1972, 86 Stat. 1276; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-30, title
I, Sec. 101(d)(11), May 23, 1977, 91 Stat. 134; Pub. L. 98-369,
div. A, title VII, Sec. 711(c)(2)(A)(iv), July 18, 1984, 98 Stat.
945; Pub. L. 105-277, div. J, title IV, Sec. 4004(b)(3), Oct. 21,
1998, 112 Stat. 2681-911.)
-MISC1-
AMENDMENTS
1998 - Subsec. (b)(1). Pub. L. 105-277 amended heading and text
of par. (1) generally. Prior to amendment, text read as follows:
"The deduction for losses allowed by section 165(c)(3), but only if
the loss is of property located within the United States."
1984 - Subsec. (b)(1). Pub. L. 98-369 substituted "for losses"
for ", for losses of property not connected with the trade or
business if arising from certain casualties or theft,".
1977 - Subsec. (c). Pub. L. 95-30 struck out par. (1) which made
a cross reference to section 142(b)(1) for disallowance of the
standard deduction and struck out "(2)" at beginning of single
remaining cross reference.
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
1972 - Subsec. (b)(3). Pub. L. 92-580 substituted exception that
only one exemption be allowed under section 151 unless the taxpayer
is a resident of a contiguous country or is a national of the
United States, for exception that in the case of a non-resident
alien individual who is not a resident of a contiguous country only
one exception be allowed under section 151.
1966 - Pub. L. 89-809 amended section generally, substituting
"connected with income which is effectively connected with the
conduct of a trade or business within the United States" for
"connected with income from sources within the United States" in
subsec. (a), striking out provisions relating to the deduction of
losses not connected with a trade or business but incurred in
transactions entered into for profit in subsec. (b), making the
casualty loss deduction available even if the property giving rise
to the loss is not effectively connected with the conduct of a
trade or business in the United States if the property is located
in this country, making the charitable contribution deduction
available even though not related to the trade or business, and
adding subsec. (c)(2) making a cross reference to section 906(b)(1)
for rule that certain foreign taxes are not to be taken into
account in determining deduction or credit.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-277 applicable to taxable years
beginning after Dec. 31, 1983, see section 4004(c)(1) of Pub. L.
105-277, set out as a note under section 172 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 711(c)(2)(A)(v) of Pub. L. 98-369,
set out as a note under section 165 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1972 AMENDMENT
Amendment by Pub. L. 92-580 applicable to taxable years beginning
after Dec. 31, 1971, see section 1(c) of Pub. L. 92-580, set out as
a note under section 152 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 103(n)(1) of Pub.
L. 89-809, set out as a note under section 871 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 153, 170, 877, 906 of
this title.
-End-
-CITE-
26 USC Sec. 874 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 874. Allowance of deductions and credits
-STATUTE-
(a) Return prerequisite to allowance
A nonresident alien individual shall receive the benefit of the
deductions and credits allowed to him in this subtitle only by
filing or causing to be filed with the Secretary a true and
accurate return, in the manner prescribed in subtitle F (sec. 6001
and following, relating to procedure and administration), including
therein all the information which the Secretary may deem necessary
for the calculation of such deductions and credits. This subsection
shall not be construed to deny the credits provided by sections 31
and 33 for tax withheld at source or the credit provided by section
34 for certain uses of gasoline and special fuels.
(b) Tax withheld at source
The benefit of the deduction for exemptions under section 151
may, in the discretion of the Secretary, and under regulations
prescribed by the Secretary, be received by a non-resident alien
individual entitled thereto, by filing a claim therefor with the
withholding agent.
(c) Foreign tax credit
Except as provided in section 906, a nonresident alien individual
shall not be allowed the credits against the tax for taxes of
foreign countries and possessions of the United States allowed by
section 901.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 281; Pub. L. 89-44, title VIII,
Sec. 809(d)(3), June 21, 1965, 79 Stat. 167; Pub. L. 89-809, title
I, Secs. 103(d), 106(a)(3), Nov. 13, 1966, 80 Stat. 1551, 1569;
Pub. L. 91-258, title II, Sec. 207(d)(1), May 21, 1970, 84 Stat.
248; Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976,
90 Stat. 1834; Pub. L. 97-424, title V, Sec. 515(b)(6)(E), Jan. 6,
1983, 96 Stat. 2182; Pub. L. 98-369, div. A, title IV, Sec.
474(r)(19), July 18, 1984, 98 Stat. 843.)
-MISC1-
AMENDMENTS
1984 - Subsec. (a). Pub. L. 98-369 substituted reference to
section "33" for "32" and "34" for "39".
1983 - Subsec. (a). Pub. L. 97-424 substituted "and special
fuels" for ", special fuels, and lubricating oil".
1976 - Subsecs. (a), (b). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1970 - Subsec. (a). Pub. L. 91-258 included provision against
construction of subsec. (a) to deny credit provided by section 39
for certain uses of special fuels.
1966 - Subsec. (a). Pub. L. 89-809, Sec. 103(d), struck out "of
his total income received from all sources in the United States"
after "true and accurate return".
Subsec. (c). Pub. L. 89-809, Sec. 106(a)(3), substituted "Foreign
tax credit" for "Foreign tax credit not allowed" in heading and
inserted reference to an exception provided in section 906.
1965 - Subsec. (a). Pub. L. 89-44 inserted "or the credit
provided by section 39 for certain uses of gasoline and lubricating
oil".
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-424 applicable with respect to articles
sold after Jan. 6, 1983, see section 515(c) of Pub. L. 97-424, set
out as a note under section 34 of this title.
EFFECTIVE DATE OF 1970 AMENDMENT
Amendment by Pub. L. 91-258 effective July 1, 1970, see section
211(a) of Pub. L. 91-258, set out as a note under section 4041 of
this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by section 103(d) of Pub. L. 89-809 applicable with
respect to taxable years beginning after Dec. 31, 1966, see section
103(n)(1) of Pub. L. 89-809, set out as a note under section 871 of
this title.
Section 106(a)(6) of Pub. L. 89-809, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this subsection [enacting section 906 of this
title and amending this section and section 901 of this title]
shall apply with respect to taxable years beginning after Dec. 31,
1966. In applying section 904 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] with respect to section 906 of such Code, no
amount may be carried from or to any taxable year beginning before
Jan. 1, 1967, and no such year shall be taken into account."
EFFECTIVE DATE OF 1965 AMENDMENT
Amendment by Pub. L. 89-44 applicable to taxable years beginning
on or after July 1, 1965, see section 809(f) of Pub. L. 89-44, set
out as a note under section 6420 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1441 of this title.
-End-
-CITE-
26 USC Sec. 875 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 875. Partnerships; beneficiaries of estates and trusts
-STATUTE-
For purposes of this subtitle -
(1) a nonresident alien individual or foreign corporation shall
be considered as being engaged in a trade or business within the
United States if the partnership of which such individual or
corporation is a member is so engaged, and
(2) a nonresident alien individual or foreign corporation which
is a beneficiary of an estate or trust which is engaged in any
trade or business within the United States shall be treated as
being engaged in such trade or business within the United States.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 281; Pub. L. 89-809, title I,
Sec. 103(e)(1), Nov. 13, 1966, 80 Stat. 1551.)
-MISC1-
AMENDMENTS
1966 - Pub. L. 89-809 designated existing provisions as par. (1),
substituted reference to nonresident alien individuals or foreign
corporations for reference simply to nonresident alien individuals,
and added par. (2).
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 103(n)(1) of Pub.
L. 89-809, set out as a note under section 871 of this title.
-End-
-CITE-
26 USC Sec. 876 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 876. Alien residents of Puerto Rico, Guam, American Samoa, or
the Northern Mariana Islands
-STATUTE-
(a) General rule
This subpart shall not apply to any alien individual who is a
bona fide resident of Puerto Rico, Guam, American Samoa, or the
Northern Mariana Islands during the entire taxable year and such
alien shall be subject to the tax imposed by section 1.
(b) Cross references
For exclusion from gross income of income derived from
sources within -
(1) Guam, American Samoa, and the Northern Mariana Islands,
see section 931, and
(2) Puerto Rico, see section 933.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 281; Pub. L. 99-514, title XII,
Sec. 1272(b), Oct. 22, 1986, 100 Stat. 2593.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514, Sec. 1272(b), inserted ", Guam, American
Samoa, or the Northern Mariana Islands" in section catchline.
Subsec. (a). Pub. L. 99-514, Sec. 1272(b), amended subsec. (a)
generally, substituting "General rule" for "No application to
certain alien residents of Puerto Rico" in heading and inserting
references to residents of Guam, American Samoa, and the Northern
Mariana Islands in text.
Subsec. (b). Pub. L. 99-514, Sec. 1272(b), amended subsec. (b)
generally, inserting references to Guam, American Samoa, and the
Northern Mariana Islands.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, with certain exceptions and qualifications,
see section 1277 of Pub. L. 99-514, set out as a note under section
931 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 901, 931 of this title.
-End-
-CITE-
26 USC Sec. 877 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 877. Expatriation to avoid tax
-STATUTE-
(a) Treatment of expatriates
(1) In general
Every nonresident alien individual who, within the 10-year
period immediately preceding the close of the taxable year, lost
United States citizenship, unless such loss did not have for one
of its principal purposes the avoidance of taxes under this
subtitle or subtitle B, shall be taxable for such taxable year in
the manner provided in subsection (b) if the tax imposed pursuant
to such subsection (after any reduction in such tax under the
last sentence of such subsection) exceeds the tax which, without
regard to this section, is imposed pursuant to section 871.
(2) Certain individuals treated as having tax avoidance purpose
For purposes of paragraph (1), an individual shall be treated
as having a principal purpose to avoid such taxes if -
(A) the average annual net income tax (as defined in section
38(c)(1)) of such individual for the period of 5 taxable years
ending before the date of the loss of United States citizenship
is greater than $100,000, or
(B) the net worth of the individual as of such date is
$500,000 or more.
In the case of the loss of United States citizenship in any
calendar year after 1996, such $100,000 and $500,000 amounts
shall be increased by an amount equal to such dollar amount
multiplied by the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting "1994" for
"1992" in subparagraph (B) thereof. Any increase under the
preceding sentence shall be rounded to the nearest multiple of
$1,000.
(b) Alternative tax
A nonresident alien individual described in subsection (a) shall
be taxable for the taxable year as provided in section 1 or 55,
except that -
(1) the gross income shall include only the gross income
described in section 872(a) (as modified by subsection (d) of
this section), and
(2) the deductions shall be allowed if and to the extent that
they are connected with the gross income included under this
section, except that the capital loss carryover provided by
section 1212(b) shall not be allowed; and the proper allocation
and apportionment of the deductions for this purpose shall be
determined as provided under regulations prescribed by the
Secretary.
For purposes of paragraph (2), the deductions allowed by section
873(b) shall be allowed; and the deduction (for losses not
connected with the trade or business if incurred in transactions
entered into for profit) allowed by section 165(c)(2) shall be
allowed, but only if the profit, if such transaction had resulted
in a profit, would be included in gross income under this section.
The tax imposed solely by reason of this section shall be reduced
(but not below zero) by the amount of any income, war profits, and
excess profits taxes (within the meaning of section 903) paid to
any foreign country or possession of the United States on any
income of the taxpayer on which tax is imposed solely by reason of
this section.
(c) Tax avoidance not presumed in certain cases
(1) In general
Subsection (a)(2) shall not apply to an individual if -
(A) such individual is described in a subparagraph of
paragraph (2) of this subsection, and
(B) within the 1-year period beginning on the date of the
loss of United States citizenship, such individual submits a
ruling request for the Secretary's determination as to whether
such loss has for one of its principal purposes the avoidance
of taxes under this subtitle or subtitle B.
(2) Individuals described
(A) Dual citizenship, etc.
An individual is described in this subparagraph if -
(i) the individual became at birth a citizen of the United
States and a citizen of another country and continues to be a
citizen of such other country, or
(ii) the individual becomes (not later than the close of a
reasonable period after loss of United States citizenship) a
citizen of the country in which -
(I) such individual was born,
(II) if such individual is married, such individual's
spouse was born, or
(III) either of such individual's parents were born.
(B) Long-term foreign residents
An individual is described in this subparagraph if, for each
year in the 10-year period ending on the date of loss of United
States citizenship, the individual was present in the United
States for 30 days or less. The rule of section
7701(b)(3)(D)(ii) shall apply for purposes of this
subparagraph.
(C) Renunciation upon reaching age of majority
An individual is described in this subparagraph if the
individual's loss of United States citizenship occurs before
such individual attains age 18 1/2 .
(D) Individuals specified in regulations
An individual is described in this subparagraph if the
individual is described in a category of individuals prescribed
by regulation by the Secretary.
(d) Special rules for source, etc.
For purposes of subsection (b) -
(1) Source rules
The following items of gross income shall be treated as income
from sources within the United States:
(A) Sale of property
Gains on the sale or exchange of property (other than stock
or debt obligations) located in the United States.
(B) Stock or debt obligations
Gains on the sale or exchange of stock issued by a domestic
corporation or debt obligations of United States persons or of
the United States, a State or political subdivision thereof, or
the District of Columbia.
(C) Income or gain derived from controlled foreign corporation
Any income or gain derived from stock in a foreign
corporation but only -
(i) if the individual losing United States citizenship
owned (within the meaning of section 958(a)), or is
considered as owning (by applying the ownership rules of
section 958(b)), at any time during the 2-year period ending
on the date of the loss of United States citizenship, more
than 50 percent of -
(I) the total combined voting power of all classes of
stock entitled to vote of such corporation, or
(II) the total value of the stock of such corporation,
and
(ii) to the extent such income or gain does not exceed the
earnings and profits attributable to such stock which were
earned or accumulated before the loss of citizenship and
during periods that the ownership requirements of clause (i)
are met.
(2) Gain recognition on certain exchanges
(A) In general
In the case of any exchange of property to which this
paragraph applies, notwithstanding any other provision of this
title, such property shall be treated as sold for its fair
market value on the date of such exchange, and any gain shall
be recognized for the taxable year which includes such date.
(B) Exchanges to which paragraph applies
This paragraph shall apply to any exchange during the 10-year
period beginning on the date the individual loses United States
citizenship if -
(i) gain would not (but for this paragraph) be recognized
on such exchange in whole or in part for purposes of this
subtitle,
(ii) income derived from such property was from sources
within the United States (or, if no income was so derived,
would have been from such sources), and
(iii) income derived from the property acquired in the
exchange would be from sources outside the United States.
(C) Exception
Subparagraph (A) shall not apply if the individual enters
into an agreement with the Secretary which specifies that any
income or gain derived from the property acquired in the
exchange (or any other property which has a basis determined in
whole or part by reference to such property) during such
10-year period shall be treated as from sources within the
United States. If the property transferred in the exchange is
disposed of by the person acquiring such property, such
agreement shall terminate and any gain which was not recognized
by reason of such agreement shall be recognized as of the date
of such disposition.
(D) Secretary may extend period
To the extent provided in regulations prescribed by the
Secretary, subparagraph (B) shall be applied by substituting
the 15-year period beginning 5 years before the loss of United
States citizenship for the 10-year period referred to therein.
In the case of any exchange occurring during such 5 years, any
gain recognized under this subparagraph shall be recognized
immediately after such loss of citizenship.
(E) Secretary may require recognition of gain in certain cases
To the extent provided in regulations prescribed by the
Secretary -
(i) the removal of appreciated tangible personal property
from the United States, and
(ii) any other occurrence which (without recognition of
gain) results in a change in the source of the income or gain
from property from sources within the United States to
sources outside the United States,
shall be treated as an exchange to which this paragraph
applies.
(3) Substantial diminishing of risks of ownership
For purposes of determining whether this section applies to any
gain on the sale or exchange of any property, the running of the
10-year period described in subsection (a) and the period
applicable under paragraph (2) shall be suspended for any period
during which the individual's risk of loss with respect to the
property is substantially diminished by -
(A) the holding of a put with respect to such property (or
similar property),
(B) the holding by another person of a right to acquire the
property, or
(C) a short sale or any other transaction.
(4) Treatment of property contributed to controlled foreign
corporations
(A) In general
If -
(i) an individual losing United States citizenship
contributes property during the 10-year period beginning on
the date the individual loses United States citizenship to
any corporation which, at the time of the contribution, is
described in subparagraph (B), and
(ii) income derived from such property immediately before
such contribution was from sources within the United States
(or, if no income was so derived, would have been from such
sources),
any income or gain on such property (or any other property
which has a basis determined in whole or part by reference to
such property) received or accrued by the corporation shall be
treated as received or accrued directly by such individual and
not by such corporation. The preceding sentence shall not apply
to the extent the property has been treated under subparagraph
(C) as having been sold by such corporation.
(B) Corporation described
A corporation is described in this subparagraph with respect
to an individual if, were such individual a United States
citizen -
(i) such corporation would be a controlled foreign
corporation (as defined in (!1) 957), and
(ii) such individual would be a United States shareholder
(as defined in section 951(b)) with respect to such
corporation.
(C) Disposition of stock in corporation
If stock in the corporation referred to in subparagraph (A)
(or any other stock which has a basis determined in whole or
part by reference to such stock) is disposed of during the
10-year period referred to in subsection (a) and while the
property referred to in subparagraph (A) is held by such
corporation, a pro rata share of such property (determined on
the basis of the value of such stock) shall be treated as sold
by the corporation immediately before such disposition.
(D) Anti-abuse rules
The Secretary shall prescribe such regulations as may be
necessary to prevent the avoidance of the purposes of this
paragraph, including where -
(i) the property is sold to the corporation, and
(ii) the property taken into account under subparagraph (A)
is sold by the corporation.
(E) Information reporting
The Secretary shall require such information reporting as is
necessary to carry out the purposes of this paragraph.
(e) Comparable treatment of lawful permanent residents who cease to
be taxed as residents
(1) In general
Any long-term resident of the United States who -
(A) ceases to be a lawful permanent resident of the United
States (within the meaning of section 7701(b)(6)), or
(B) commences to be treated as a resident of a foreign
country under the provisions of a tax treaty between the United
States and the foreign country and who does not waive the
benefits of such treaty applicable to residents of the foreign
country,
shall be treated for purposes of this section and sections 2107,
2501, and 6039G in the same manner as if such resident were a
citizen of the United States who lost United States citizenship
on the date of such cessation or commencement.
(2) Long-term resident
For purposes of this subsection, the term "long-term resident"
means any individual (other than a citizen of the United States)
who is a lawful permanent resident of the United States in at
least 8 taxable years during the period of 15 taxable years
ending with the taxable year during which the event described in
subparagraph (A) or (B) of paragraph (1) occurs. For purposes of
the preceding sentence, an individual shall not be treated as a
lawful permanent resident for any taxable year if such individual
is treated as a resident of a foreign country for the taxable
year under the provisions of a tax treaty between the United
States and the foreign country and does not waive the benefits of
such treaty applicable to residents of the foreign country.
(3) Special rules
(A) Exceptions not to apply
Subsection (c) shall not apply to an individual who is
treated as provided in paragraph (1).
(B) Step-up in basis
Solely for purposes of determining any tax imposed by reason
of this subsection, property which was held by the long-term
resident on the date the individual first became a resident of
the United States shall be treated as having a basis on such
date of not less than the fair market value of such property on
such date. The preceding sentence shall not apply if the
individual elects not to have such sentence apply. Such an
election, once made, shall be irrevocable.
(4) Authority to exempt individuals
This subsection shall not apply to an individual who is
described in a category of individuals prescribed by regulation
by the Secretary.
(5) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out this subsection, including regulations
providing for the application of this subsection in cases where
an alien individual becomes a resident of the United States
during the 10-year period after being treated as provided in
paragraph (1).
(f) Burden of proof
If the Secretary establishes that it is reasonable to believe
that an individual's loss of United States citizenship would, but
for this section, result in a substantial reduction for the taxable
year in the taxes on his probable income for such year, the burden
of proving for such taxable year that such loss of citizenship did
not have for one of its principal purposes the avoidance of taxes
under this subtitle or subtitle B shall be on such individual.
-SOURCE-
(Added Pub. L. 89-809, title I, Sec. 103(f)(1), Nov. 13, 1966, 80
Stat. 1551; amended Pub. L. 93-406, title II, Sec. 2005(c)(8),
Sept. 2, 1974, 88 Stat. 992; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-600, title
IV, Sec. 421(e)(5), Nov. 6, 1978, 92 Stat. 2876; Pub. L. 96-222,
title I, Sec. 104(a)(1), (4)(H)(v), Apr. 1, 1980, 94 Stat. 214,
217; Pub. L. 99-514, title XII, Sec. 1243(a), Oct. 22, 1986, 100
Stat. 2580; Pub. L. 102-318, title V, Sec. 521(b)(31), July 3,
1992, 106 Stat. 312; Pub. L. 104-188, title I, Sec. 1401(b)(11),
Aug. 20, 1996, 110 Stat. 1789; Pub. L. 104-191, title V, Sec.
511(a)-(d), (f)(1), Aug. 21, 1996, 110 Stat. 2093-2098; Pub. L.
105-34, title XVI, Sec. 1602(g)(1)-(4), (h)(3), Aug. 5, 1997, 111
Stat. 1095, 1096.)
-STATAMEND-
ADJUSTMENT OF NET TAX AND NET WORTH AMOUNTS FOR CALENDAR YEAR 2004
For adjustment of average annual net income tax and net worth
amounts under subsection (a)(2) of this section for calendar year
2004, see section 3.24 of Revenue Procedure 2003-85, set out as a
note under section 1 of this title.
-MISC1-
PRIOR PROVISIONS
A prior section 877 was renumbered section 878 of this title.
AMENDMENTS
1997 - Subsec. (d)(2)(B). Pub. L. 105-34, Sec. 1602(g)(1),
substituted "the 10-year period beginning on the date the
individual loses United States citizenship" for "the 10-year period
described in subsection (a)" in introductory provisions.
Subsec. (d)(2)(D). Pub. L. 105-34, Sec. 1602(g)(2), inserted at
end "In the case of any exchange occurring during such 5 years, any
gain recognized under this subparagraph shall be recognized
immediately after such loss of citizenship."
Subsec. (d)(3). Pub. L. 105-34, Sec. 1602(g)(3), inserted "and
the period applicable under paragraph (2)" after "subsection (a)"
in introductory provisions.
Subsec. (d)(4)(A). Pub. L. 105-34, Sec. 1602(g)(4)(C), struck out
"during the 10-year period referred to in subsection (a)," before
"any income or gain" in concluding provisions.
Subsec. (d)(4)(A)(i). Pub. L. 105-34, Sec. 1602(g)(4)(A),
inserted "during the 10-year period beginning on the date the
individual loses United States citizenship" after "contributes
property".
Subsec. (d)(4)(A)(ii). Pub. L. 105-34, Sec. 1602(g)(4)(B),
inserted "immediately before such contribution" after "from such
property".
Subsec. (e)(1). Pub. L. 105-34, Sec. 1602(h)(3), substituted
"6039G" for "6039F" in concluding provisions.
1996 - Subsec. (a). Pub. L. 104-191, Sec. 511(a), amended subsec.
(a) generally. Prior to amendment, subsec. (a) read as follows:
"(a) In General. - Every nonresident alien individual who at any
time after March 8, 1965, and within the 10-year period immediately
preceding the close of the taxable year lost United States
citizenship, unless such loss did not have for one of its principal
purposes the avoidance of taxes under this subtitle or subtitle B,
shall be taxable for such taxable year in the manner provided in
subsection (b) if the tax imposed pursuant to such subsection
exceeds the tax which, without regard to this section, is imposed
pursuant to section 871."
Subsec. (a)(1). Pub. L. 104-191, Sec. 511(d)(2), inserted "(after
any reduction in such tax under the last sentence of such
subsection)" after "such subsection".
Subsec. (b). Pub. L. 104-191, Sec. 511(d)(1), inserted at end
"The tax imposed solely by reason of this section shall be reduced
(but not below zero) by the amount of any income, war profits, and
excess profits taxes (within the meaning of section 903) paid to
any foreign country or possession of the United States on any
income of the taxpayer on which tax is imposed solely by reason of
this section."
Pub. L. 104-188 substituted "section 1 or 55" for "section 1, 55,
or 402(d)(1)".
Subsec. (b)(1). Pub. L. 104-191, Sec. 511(b)(2), substituted
"subsection (d)" for "subsection (c)".
Subsec. (c). Pub. L. 104-191, Sec. 511(b)(1), added subsec. (c).
Former subsec. (c) redesignated (d).
Subsec. (d). Pub. L. 104-191, Sec. 511(c), amended subsec. (d)
generally. Prior to amendment, subsec. (d) read as follows:
"(d) Special Rules of Source. - For purposes of subsection (b),
the following items of gross income shall be treated as income from
sources within the United States:
"(1) Sale of property. - Gains on the sale or exchange of
property (other than stock or debt obligations) located in the
United States.
"(2) Stock or debt obligations. - Gains on the sale or exchange
of stock issued by a domestic corporation or debt obligations of
United States persons or of the United States, a State or
political subdivision thereof, or the District of Columbia.
For purposes of this section, gain on the sale or exchange of
property which has a basis determined in whole or in part by
reference to property described in paragraph (1) or (2) shall be
treated as gain described in paragraph (1) or (2)."
Pub. L. 104-191, Sec. 511(b)(1), redesignated subsec. (c) as (d)
and struck out former subsec. (d) which read as follows:
"(d) Exception for Loss of Citizenship for Certain Causes. -
Subsection (a) shall not apply to a nonresident alien individual
whose loss of United States citizenship resulted from the
application of section 301(b), 350, or 355 of the Immigration and
Nationality Act, as amended (8 U.S.C. 1401(b), 1482, or 1487)."
Subsecs. (e), (f). Pub. L. 104-191, Sec. 511(f)(1), added subsec.
(e) and redesignated former subsec. (e) as (f).
1992 - Subsec. (b). Pub. L. 102-318 substituted "402(d)(1)" for
"402(e)(1)".
1986 - Subsec. (c). Pub. L. 99-514 inserted at end "For purposes
of this section, gain on the sale or exchange of property which has
a basis determined in whole or in part by reference to property
described in paragraph (1) or (2) shall be treated as gain
described in paragraph (1) or (2)."
1980 - Subsec. (b). Pub. L. 96-222 substituted "55, or 402(e)(1)"
for "section 55, 402(e)(1), or section 1201(b)".
1978 - Subsec. (b). Pub. L. 95-600 substituted "section 1,
section 55," for "section 1".
1976 - Subsecs. (b)(2), (e). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1974 - Subsec. (b). Pub. L. 93-406 inserted reference to section
402(e)(1).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Health Insurance Portability and Accountability
Act of 1996, Pub. L. 104-191, to which such amendment relates, see
section 1602(i) of Pub. L. 105-34, set out as a note under section
26 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 511(g) of Pub. L. 104-191 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 2107 and 2501 of this title] shall apply
to -
"(A) individuals losing United States citizenship (within the
meaning of section 877 of the Internal Revenue Code of 1986) on
or after February 6, 1995, and
"(B) long-term residents of the United States with respect to
whom an event described in subparagraph (A) or (B) of section
877(e)(1) of such Code occurs on or after February 6, 1995.
"(2) Ruling requests. - In no event shall the 1-year period
referred to in section 877(c)(1)(B) of such Code, as amended by
this section, expire before the date which is 90 days after the
date of the enactment of this Act [Aug. 21, 1996].
"(3) Special rule. -
"(A) In general. - In the case of an individual who performed
an act of expatriation specified in paragraph (1), (2), (3), or
(4) of section 349(a) of the Immigration and Nationality Act (8
U.S.C. 1481(a)(1)-(4)) before February 6, 1995, but who did not,
on or before such date, furnish to the United States Department
of State a signed statement of voluntary relinquishment of United
States nationality confirming the performance of such act, the
amendments made by this section and section 512 [enacting section
6039F of this title] shall apply to such individual except that
the 10-year period described in section 877(a) of such Code shall
not expire before the end of the 10-year period beginning on the
date such statement is so furnished.
"(B) Exception. - Subparagraph (A) shall not apply if the
individual establishes to the satisfaction of the Secretary of
the Treasury that such loss of United States citizenship occurred
before February 6, 1994."
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1999, with retention of certain transition
rules, see section 1401(c) of Pub. L. 104-188, set out as a note
under section 402 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1243(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to sales
or exchanges of property received in exchanges after September 25,
1985."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 421(g) of Pub. L. 95-600, set out
as a note under section 5 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by Pub. L. 93-406 applicable only with respect to
distributions or payments made after Dec. 31, 1973, in taxable
years beginning after Dec. 31, 1973, see section 2005(d) of Pub. L.
93-406, set out as a note under section 402 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years beginning after
Dec. 31, 1966, see section 103(n)(1) of Pub. L. 89-809, set out as
an Effective Date of 1966 Amendment note under section 871 of this
title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L.
104-188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 2, 121, 865, 894, 2057,
2107, 2501, 3405, 6039G, 7701 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be followed by "section".
-End-
-CITE-
26 USC Sec. 878 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 878. Foreign educational, charitable, and certain other exempt
organizations
-STATUTE-
For special provisions relating to foreign educational,
charitable, and other exempt organizations, see sections 512(a)
and 4948.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 282, Sec. 877; renumbered Sec.
878, Pub. L. 89-809, title I, Sec. 103(f)(1), Nov. 13, 1966, 80
Stat. 1551; amended Pub. L. 91-172, title I, Sec. 101(j)(20), Dec.
30, 1969, 83 Stat. 528.)
-MISC1-
AMENDMENTS
1969 - Pub. L. 91-172 substituted provisions requiring reference
to organizations in sections 512(a) and 4948 for provisions
requiring reference to trusts in section 512(a), and struck out
reference to unrelated business income.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 101(k)(2)(B) of Pub. L. 91-172,
set out as an Effective Date note under section 4940 of this title.
-End-
-CITE-
26 USC Sec. 879 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 879. Tax treatment of certain community income in the case of
nonresident alien individuals
-STATUTE-
(a) General rule
In the case of a married couple 1 or both of whom are nonresident
alien individuals and who have community income for the taxable
year, such community income shall be treated as follows:
(1) Earned income (within the meaning of section 911(d)(2)),
other than trade or business income and a partner's distributive
share of partnership income, shall be treated as the income of
the spouse who rendered the personal services,
(2) Trade or business income, and a partner's distributive
share of partnership income, shall be treated as provided in
section 1402(a)(5),
(3) Community income not described in paragraph (1) or (2)
which is derived from the separate property (as determined under
the applicable community property law) of one spouse shall be
treated as the income of such spouse, and
(4) All other such community income shall be treated as
provided in the applicable community property law.
(b) Exception where election under section 6013(g) is in effect
Subsection (a) shall not apply for any taxable year for which an
election under subsection (g) or (h) of section 6013 (relating to
election to treat nonresident alien individual as resident of the
United States) is in effect.
(c) Definitions and special rules
For purposes of this section -
(1) Community income
The term "community income" means income which, under
applicable community property laws, is treated as community
income.
(2) Community property laws
The term "community property laws" means the community property
laws of a State, a foreign country, or a possession of the United
States.
(3) Determination of marital status
The determination of marital status shall be made under section
7703(a).
-SOURCE-
(Added Pub. L. 94-455, title X, Sec. 1012(b)(1), Oct. 4, 1976, 90
Stat. 1613; amended Pub. L. 97-34, title I, Sec. 111(b)(4), Aug.
13, 1981, 95 Stat. 194; Pub. L. 98-369, div. A, title I, Sec.
139(a), (b)(1), July 18, 1984, 98 Stat. 677; Pub. L. 99-514, title
XIII, Sec. 1301(j)(9), Oct. 22, 1986, 100 Stat. 2658.)
-MISC1-
AMENDMENTS
1986 - Subsec. (c)(3). Pub. L. 99-514 substituted "section
7703(a)" for "section 143(a)".
1984 - Pub. L. 98-369, Sec. 139(b)(1), substituted "nonresident
alien individuals" for "a resident or citizen of the United States
who is married to a nonresident alien individual" in section
catchline.
Subsec. (a). Pub. L. 98-369, Sec. 139(a), substituted in
provision preceding par. (1) "married couple 1 or both of whom are
nonresident alien individuals" for "citizen or resident of the
United States who is married to a nonresident alien individual".
1981 - Subsec. (a)(1). Pub. L. 97-34 substituted "section
911(d)(2)" for "section 911(b)".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to bonds issued after Aug.
15, 1986, except as otherwise provided, see sections 1311 to 1318
of Pub. L. 99-514, set out as an Effective Date; Transitional Rules
note under section 141 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 139(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1984."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable with respect to taxable
years beginning after Dec. 31, 1981, see section 115 of Pub. L.
97-34, set out as a note under section 911 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1976, see section 1012(d) of Pub. L. 94-455, set out as an
Effective Date of 1976 Amendment note under section 6013 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 66 of this title.
-End-
-CITE-
26 USC Subpart B - Foreign Corporations 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
SUBPART B - FOREIGN CORPORATIONS
-MISC1-
Sec.
881. Tax on income of foreign corporations not connected
with United States business.
882. Tax on income of foreign corporations connected with
United States business.
883. Exclusions from gross income.
884. Branch profits tax.
885. Cross references.
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Sec. 1241(d), Oct. 22, 1986,
100 Stat. 2580, added item 884 and redesignated former item 884 as
885.
1966 - Pub. L. 89-809, title I, Sec. 104(b)(3), Nov. 13, 1966, 80
Stat. 1557, substituted "Tax on income of foreign corporations not
connected with United States business" for "Tax on foreign
corporations not engaged in business in United States" in item 881,
and "Tax on income of foreign corporations connected with United
States business" for "Tax on resident foreign corporations" in item
882.
-End-
-CITE-
26 USC Sec. 881 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
Sec. 881. Tax on income of foreign corporations not connected with
United States business
-STATUTE-
(a) Imposition of tax
Except as provided in subsection (c), there is hereby imposed for
each taxable year a tax of 30 percent of the amount received from
sources within the United States by a foreign corporation as -
(1) interest (other than original issue discount as defined in
section 1273), dividends, rents, salaries, wages, premiums,
annuities, compensations, remunerations, emoluments, and other
fixed or determinable annual or periodical gains, profits, and
income,
(2) gains described in section 631(b) or (c),
(3) in the case of -
(A) a sale or exchange of an original issue discount
obligation, the amount of the original issue discount accruing
while such obligation was held by the foreign corporation (to
the extent such discount was not theretofore taken into account
under subparagraph (B)), and
(B) a payment on an original issue discount obligation, an
amount equal to the original issue discount accruing while such
obligation was held by the foreign corporation (except that
such original issue discount shall be taken into account under
this subparagraph only to the extent such discount was not
theretofore taken into account under this subparagraph and only
to the extent that the tax thereon does not exceed the payment
less the tax imposed by paragraph (1) thereon), and
(4) gains from the sale or exchange after October 4, 1966, of
patents, copyrights, secret processes and formulas, good will,
trademarks, trade brands, franchises, and other like property, or
of any interest in any such property, to the extent such gains
are from payments which are contingent on the productivity, use,
or disposition of the property or interest sold or exchanged,
but only to the extent the amount so received is not effectively
connected with the conduct of a trade or business within the United
States.
(b) Exception for certain Guam and Virgin Islands corporations
(1) In general
For purposes of this section and section 884, a corporation
created or organized in Guam, American Samoa, the Northern
Mariana Islands, or the Virgin Islands or under the law of any
such possession shall not be treated as a foreign corporation for
any taxable year if -
(A) at all times during such taxable year less than 25
percent in value of the stock of such corporation is
beneficially owned (directly or indirectly) by foreign persons,
(B) at least 65 percent of the gross income of such
corporation is shown to the satisfaction of the Secretary to be
effectively connected with the conduct of a trade or business
in such a possession or the United States for the 3-year period
ending with the close of the taxable year of such corporation
(or for such part of such period as the corporation or any
predecessor has been in existence), and
(C) no substantial part of the income of such corporation is
used (directly or indirectly) to satisfy obligations to persons
who are not bona fide residents of such a possession or the
United States.
(2) Definitions
(A) Foreign person
For purposes of paragraph (1), the term "foreign person"
means any person other than -
(i) a United States person, or
(ii) a person who would be a United States person if
references to the United States in section 7701 included
references to a possession of the United States.
(B) Indirect ownership rules
For purposes of paragraph (1), the rules of section 318(a)(2)
shall apply except that "5 percent" shall be substituted for
"50 percent" in subparagraph (C) thereof.
(c) Repeal of tax on interest of foreign corporations received from
certain portfolio debt investments
(1) In general
In the case of any portfolio interest received by a foreign
corporation from sources within the United States, no tax shall
be imposed under paragraph (1) or (3) of subsection (a).
(2) Portfolio interest
For purposes of this subsection, the term "portfolio interest"
means any interest (including original issue discount) which
would be subject to tax under subsection (a) but for this
subsection and which is described in any of the following
subparagraphs:
(A) Certain obligations which are not registered
Interest which is paid on any obligation which is described
in section 871(h)(2)(A).
(B) Certain registered obligations
Interest which is paid on an obligation -
(i) which is in registered form, and
(ii) with respect to which the person who would otherwise
be required to deduct and withhold tax from such interest
under section 1442(a) receives a statement which meets the
requirements of section 871(h)(5) that the beneficial owner
of the obligation is not a United States person.
(3) Portfolio interest shall not include interest received by
certain persons
For purposes of this subsection, the term "portfolio interest"
shall not include any portfolio interest which -
(A) except in the case of interest paid on an obligation of
the United States, is received by a bank on an extension of
credit made pursuant to a loan agreement entered into in the
ordinary course of its trade or business,
(B) is received by a 10-percent shareholder (within the
meaning of section 871(h)(3)(B)), or
(C) is received by a controlled foreign corporation from a
related person (within the meaning of section 864(d)(4)).
(4) Portfolio interest not to include certain contingent interest
For purposes of this subsection, the term "portfolio interest"
shall not include any interest which is treated as not being
portfolio interest under the rules of section 871(h)(4).
(5) Special rules for controlled foreign corporations
(A) In general
In the case of any portfolio interest received by a
controlled foreign corporation, the following provisions shall
not apply:
(i) Subparagraph (A) of section 954(b)(3) (relating to
exception where foreign base company income is less than 5
percent or $1,000,000).
(ii) Paragraph (4) of section 954(b) (relating to exception
for certain income subject to high foreign taxes).
(iii) Clause (i) of section 954(c)(3)(A) (relating to
certain income received from related persons).
(B) Controlled foreign corporation
For purposes of this subsection, the term "controlled foreign
corporation" has the meaning given to such term by section
957(a).
(6) Secretary may cease application of this subsection
Under rules similar to the rules of section 871(h)(6), the
Secretary may provide that this subsection shall not apply to
payments of interest described in section 871(h)(6).
(7) Registered form
For purposes of this subsection, the term "registered form" has
the meaning given such term by section 163(f).
(d) Tax not to apply to certain interest and dividends
No tax shall be imposed under paragraph (1) or (3) of subsection
(a) on any amount described in section 871(i)(2).
(e) Cross reference
For doubling of tax on corporations of certain foreign
countries, see section 891.
For special rules for original issue discount, see section
871(g).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 282; Pub. L. 89-809, title I,
Sec. 104(a), Nov. 13, 1966, 80 Stat. 1555; Pub. L. 92-178, title
III, Sec. 313(a), (c), Dec. 10, 1971, 85 Stat. 526, 527; Pub. L.
92-606, Sec. 1(e)(1), Oct. 31, 1972, 86 Stat. 1497; Pub. L. 94-455,
title XIX, Sec. 1901(b)(3)(I), Oct. 4, 1976, 90 Stat. 1793; Pub. L.
98-369, div. A, title I, Secs. 42(a)(10), 127(b), 128(b), 130(a),
July 18, 1984, 98 Stat. 557, 650, 654, 660; Pub. L. 99-514, title
XII, Secs. 1211(b)(6), 1214(c)(2), 1223(b)(2), 1273(b)(1), (2)(A),
title XVIII, Secs. 1810(d)(1)(B), (3)(C), (e)(2)(B), 1899A(22),
(23), (68), Oct. 22, 1986, 100 Stat. 2536, 2542, 2558, 2595, 2596,
2825, 2826, 2959, 2962; Pub. L. 100-647, title I, Sec. 1012(i)(17),
Nov. 10, 1988, 102 Stat. 3510; Pub. L. 103-66, title XIII, Sec.
13237(a)(2), (c)(2), (3), Aug. 10, 1993, 107 Stat. 507, 508.)
-MISC1-
AMENDMENTS
1993 - Subsec. (c)(2)(B)(ii). Pub. L. 103-66, Sec. 13237(c)(2),
substituted "section 871(h)(5)" for "section 871(h)(4)".
Subsec. (c)(4), (5). Pub. L. 103-66, Sec. 13237(a)(2), added par.
(4) and redesignated former par. (4) as (5). Former par. (5)
redesignated (6).
Subsec. (c)(6). Pub. L. 103-66, Sec. 13237(a)(2), (c)(3),
redesignated par. (5) as (6) and substituted "section 871(h)(6)"
for "section 871(h)(5)" in two places. Former par. (6) redesignated
(7).
Subsec. (c)(7). Pub. L. 103-66, Sec. 13237(a)(2), redesignated
par. (6) as (7).
1988 - Subsec. (c)(4)(A)(ii) to (v). Pub. L. 100-647 added cls.
(ii) and (iii) and struck out former cls. (ii) to (v), which read
as follows:
"(ii) Paragraph (4) of section 954(b) (relating to corporations
not formed or availed of to avoid tax).
"(iii) Subparagraph (B) of section 954(c)(3) (relating to certain
income derived in active conduct of trade or business).
"(iv) Subparagraph (C) of section 954(c)(3) (relating to certain
income derived by an insurance company).
"(v) Subparagraphs (A) and (B) of section 954(c)(4) (relating to
exception for certain income received from related persons)."
1986 - Subsec. (a)(3)(A). Pub. L. 99-514, Sec. 1810(e)(2)(B),
amended subpar. (A) generally, striking out "any gain not in excess
of" before "the original issue discount".
Subsec. (a)(3)(B). Pub. L. 99-514, Sec. 1810(e)(2)(B), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "the payment of interest on an original issue discount
obligation, an amount equal to the original issue discount accrued
on such obligation since the last payment of interest thereon
(except that such original issue discount shall be taken into
account under this subparagraph only to the extent that the tax
thereon does not exceed the interest payment less the tax imposed
by paragraph (1) thereon), and".
Subsec. (a)(4). Pub. L. 99-514, Sec. 1211(b)(6), struck out "or
from payments which are treated as being so contingent under
section 871(e)," after "sold or exchanged,".
Subsec. (b)(1). Pub. L. 99-514, Sec. 1273(b)(1), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "For
purposes of this section, a corporation created or organized in
Guam or the Virgin Islands or under the law of Guam or the Virgin
Islands shall not be treated as a foreign corporation for any
taxable year if -
"(A) at all times during such taxable year less than 25 percent
in value of the stock of such corporation is owned (directly or
indirectly) by foreign persons, and
"(B) at least 20 percent of the gross income of such
corporation is shown to the satisfaction of the Secretary to have
been derived from sources within Guam or the Virgin Islands (as
the case may be) for the 3-year period ending with the close of
the preceding taxable year of such corporation (or for such part
of such period as the corporation has been in existence)."
Subsec. (b)(2). Pub. L. 99-514, Sec. 1273(b)(1), (2)(A),
redesignated par. (3) as (2) and struck out former par. (2) which
provided that par. (1) of this subsection not apply with respect to
income tax liability incurred to Guam.
Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 1899A(22), substituted
"paragraph" for "Paragraph".
Subsec. (b)(3), (4). Pub. L. 99-514, Sec. 1273(b)(2)(A),
redesignated par. (3) as (2) and struck out par. (4) which provided
a cross reference to sections 934 and 934A.
Subsec. (c). Pub. L. 99-514, Sec. 1899A(68), made clarifying
amendment to directory language of Pub. L. 98-369, Sec. 127(b)(1).
See 1984 Amendment note below.
Subsec. (c)(2). Pub. L. 99-514, Sec. 1810(d)(1)(B), (3)(C),
inserted "which would be subject to tax under subsection (a) but
for this subsection and" in introductory provisions and substituted
"receives a statement" for "has received a statement" in subpar.
(B)(ii).
Subsec. (c)(3)(C). Pub. L. 99-514, Sec. 1899A(23), inserted a
closing parenthesis following "section 864(d)(4)".
Subsec. (c)(4)(A)(i). Pub. L. 99-514, Sec. 1223(b)(2),
substituted "less than 5 percent or $1,000,000" for "less than 10
percent".
Subsecs. (d), (e). Pub. L. 99-514, Sec. 1214(c)(2), added subsec.
(d) and redesignated former subsec. (d) as (e).
1984 - Subsec. (a). Pub. L. 98-369, Sec. 127(b)(2), substituted
"Except as provided in subsection (c), there" for "There" in
introductory provision.
Subsec. (a)(1). Pub. L. 98-369, Sec. 42(a)(10), substituted
"section 1273" for "section 1232(b)".
Subsec. (a)(3). Pub. L. 98-369, Sec. 128(b)(1), amended par. (3)
generally, substituting in subpar. (A), "a sale or exchange of an
original issue discount obligation, the amount of any gain not in
excess of the original issue discount accruing while such
obligation was held by the foreign corporation (to the extent such
discount was not theretofore taken into account under subparagraph
(B)), and" for "bonds or other evidences of indebtedness issued
after September 28, 1965, and before April 1, 1972, amounts which
under section 1232(a)(2)(B) are considered as ordinary income, and,
in the case of corporate obligations issued after May 27, 1969, and
before April 1, 1972, amounts which would be so considered but for
the fact the obligations were issued after May 27, 1969,",
substituting in subpar. (B), "the payment of interest on an
original issue discount obligation, an amount equal to the original
issue discount accrued on such obligation since the last payment of
interest thereon (except that such original issue discount shall be
taken into account under this subparagraph only to the extent that
the tax thereon does not exceed the interest payment less the tax
imposed by paragraph (1) thereon), and" for "bonds or other
evidences of indebtedness issued after March 31, 1972, and payable
more than 6 months from the date of original issue (without regard
to the period held by the taxpayer), amounts which under section
1232(a)(2)(B) would be considered as ordinary income but for the
fact such obligations were issued after May 27, 1969, and", and
striking out subpar. (C) which required that in the case of the
payment of interest on an obligation described in subpar. (B), an
amount equal to the original issue discount, but not in excess of
such interest less the tax imposed by par. (1) thereon, accrued on
such obligation since the last payment of interest thereon, be
included for purpose of the 30 percent tax.
Subsec. (b). Pub. L. 98-369, Sec. 130(a), amended subsec. (b)
generally, substituting provision establishing an exception for
certain Guam and Virgin Islands corporations for provision
establishing an exception for Guam corporations.
Subsec. (c). Pub. L. 98-369, Sec. 127(b)(1), as amended by Pub.
L. 99-514, Sec. 1899A(68), added subsec. (c). Former subsec. (c)
redesignated (d).
Pub. L. 98-369, Sec. 128(b)(2), amended subsec. (c) generally,
substituting in heading "Cross reference" for "Doubling of tax" and
inserting provision directing that for special rules for original
issue discount, see section 871(g).
Subsec. (d). Pub. L. 98-369, Sec. 127(b)(1), as amended by Pub.
L. 99-514, Sec. 1899A(68), redesignated subsec. (c) as (d).
1976 - Subsec. (a)(3)(A), (B). Pub. L. 94-455 substituted
"ordinary income" for "gain from the sale or exchange of property
which is not a capital asset".
1972 - Subsecs. (b), (c). Pub. L. 92-606 added subsec. (b) and
redesignated former subsec. (b) as (c).
1971 - Subsec. (a)(1). Pub. L. 92-178, Sec. 313(a), inserted
"(other than original issue discount as defined in section
1232(b))" after "interest".
Subsec. (a)(3). Pub. L. 92-178, Sec. 313(c), designated existing
provisions as subpar. (A), inserted "and before April 1, 1972,"
after "September 28, 1965,", substituted "section 1232(a)(2)(B)"
for "section 1232", and inserted ", in the case of corporate
obligations issued after May 27, 1969, and before April 1, 1972,
amounts which would be so considered but for the fact that the
obligations were issued after May 27, 1969,", and added subpars.
(B) and (C).
1966 - Subsec. (a). Pub. L. 89-809 substantially revised the
income tax treatment of foreign corporations, substituted the
concept of amounts received from sources within the United States
by foreign corporations but not effectively connected with the
conduct of a trade or business within the United States for the
concept of amounts received from sources within the United States
by foreign corporations not engaged in trade or business within the
United States as the amount upon which the existing 30 percent levy
should be imposed, and added contingent income received from the
sale of patents and other intangibles and amounts of original issue
discount which are treated as ordinary income received on
retirement or sale or exchange of bonds or other evidences of
indebtedness issued after Sept. 28, 1965, to the specified types of
fixed or determinable income.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to interest received after
Dec. 31, 1993, see section 13237(d) of Pub. L. 103-66, set out as a
note under section 871 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1211(b)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Amendment by section 1214(c)(2) of Pub. L. 99-514 applicable to
payments made in taxable year of payor beginning after Dec. 31,
1986, except as otherwise provided, see section 1214(d) of Pub. L.
99-514, as amended, set out as a note under section 861 of this
title.
Amendment by section 1223(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1223(c) of
Pub. L. 99-514, set out as a note under section 864 of this title.
Amendment by section 1273(b)(1), (2)(A) of Pub. L. 99-514
applicable to taxable years beginning after Dec. 31, 1986, with
certain exceptions and qualifications, see section 1277 of Pub. L.
99-514, set out as a note under section 931 of this title.
Amendment by section 1810(d)(1)(B), (3)(C), (e)(2)(B) of Pub. L.
99-514 effective, except as otherwise provided, as if included in
the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div.
A, to which such amendment relates, see section 1881 of Pub. L.
99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 42(a)(10) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Amendment by section 127(b) of Pub. L. 98-369 applicable to
interest received after July 18, 1984, with respect to obligations
issued after such date, in taxable years after such date, see
section 127(g)(1) of Pub. L. 98-369, set out as a note under
section 871 of this title.
Amendment by section 128(b) of Pub. L. 98-369 applicable to
payments made on or after the 60th day after July 18, 1984, with
respect to obligations issued after Mar. 31, 1972, see section
128(d)(1) of Pub. L. 98-369, set out as a note under section 871 of
this title.
Section 130(d) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and sections 1442 and
7651 of this title] shall apply to payments made after March 1,
1984, in taxable years ending after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective for taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1972 AMENDMENT
Section 2 of Pub. L. 92-606 provided in part that: "The
amendments made by section 1(e)(1) [amending this section] shall
apply with respect to taxable years beginning after December 31,
1971."
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by Pub. L. 92-178 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 313(f) of Pub. L.
92-178, set out as a note under section 871 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendments by sections 1211(b)(6) and
1214(c)(2) of Pub. L. 99-514 to the extent application of such
amendments would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 26, 306, 814, 842, 860G,
864, 871, 882, 884, 887, 891, 906, 1276, 1278, 1442, 1444, 1563,
6012, 6655 of this title; title 48 section 1421i.
-End-
-CITE-
26 USC Sec. 882 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
Sec. 882. Tax on income of foreign corporations connected with
United States business
-STATUTE-
(a) Imposition of tax
(1) In general
A foreign corporation engaged in trade or business within the
United States during the taxable year shall be taxable as
provided in section 11, 55, 59A, or 1201(a) on its taxable income
which is effectively connected with the conduct of a trade or
business within the United States.
(2) Determination of taxable income
In determining taxable income for purposes of paragraph (1),
gross income includes only gross income which is effectively
connected with the conduct of a trade or business within the
United States.
(3) [Cross reference (!1)]
For special tax treatment of gain or loss from the
disposition by a foreign corporation of a United States real
property interest, see section 897.
(b) Gross income
In the case of a foreign corporation, except where the context
clearly indicates otherwise, gross income includes only -
(1) gross income which is derived from sources within the
United States and which is not effectively connected with the
conduct of a trade or business within the United States, and
(2) gross income which is effectively connected with the
conduct of a trade or business within the United States.
(c) Allowance of deductions and credits
(1) Allocation of deductions
(A) General rule
In the case of a foreign corporation, the deductions shall be
allowed only for purposes of subsection (a) and (except as
provided by subparagraph (B)) only if and to the extent that
they are connected with income which is effectively connected
with the conduct of a trade or business within the United
States; and the proper apportionment and allocation of the
deductions for this purpose shall be determined as provided in
regulations prescribed by the Secretary.
(B) Charitable contributions
The deduction for charitable contributions and gifts provided
by section 170 shall be allowed whether or not connected with
income which is effectively connected with the conduct of a
trade or business within the United States.
(2) Deductions and credits allowed only if return filed
A foreign corporation shall receive the benefit of the
deductions and credits allowed to it in this subtitle only by
filing or causing to be filed with the Secretary a true and
accurate return, in the manner prescribed in subtitle F,
including therein all the information which the Secretary may
deem necessary for the calculation of such deductions and
credits. The preceding sentence shall not apply for purposes of
the tax imposed by section 541 (relating to personal holding
company tax), and shall not be construed to deny the credit
provided by section 33 for tax withheld at source or the credit
provided by section 34 for certain uses of gasoline.
(3) Foreign tax credit
Except as provided by section 906, foreign corporations shall
not be allowed the credit against the tax for taxes of foreign
countries and possessions of the United States allowed by section
901.
(4) Cross reference
For rule that certain foreign taxes are not to be taken into
account in determining deduction or credit, see section
906(b)(1).
(d) Election to treat real property income as income connected with
United States business
(1) In general
A foreign corporation which during the taxable year derives any
income -
(A) from real property located in the United States, or from
any interest in such real property, including (i) gains from
the sale or exchange of real property or an interest therein,
(ii) rents or royalties from mines, wells, or other natural
deposits, and (iii) gains described in section 631(b) or (c),
and
(B) which, but for this subsection, would not be treated as
income effectively connected with the conduct of a trade or
business within the United States,
may elect for such taxable year to treat all such income as
income which is effectively connected with the conduct of a trade
or business within the United States. In such case, such income
shall be taxable as provided in subsection (a)(1) whether or not
such corporation is engaged in trade or business within the
United States during the taxable year. An election under this
paragraph for any taxable year shall remain in effect for all
subsequent taxable years, except that it may be revoked with the
consent of the Secretary with respect to any taxable year.
(2) Election after revocation, etc.
Paragraphs (2) and (3) of section 871(d) shall apply in respect
of elections under this subsection in the same manner and to the
same extent as they apply in respect of elections under section
871(d).
(e) Interest on United States obligations received by banks
organized in possessions
In the case of a corporation created or organized in, or under
the law of, a possession of the United States which is carrying on
the banking business in a possession of the United States, interest
on obligations of the United States which is not portfolio interest
(as defined in section 881(c)(2)) shall -
(1) for purposes of this subpart, be treated as income which is
effectively connected with the conduct of a trade or business
within the United States, and
(2) shall be taxable as provided in subsection (a)(1) whether
or not such corporation is engaged in trade or business within
the United States during the taxable year.
(f) Returns of tax by agent
If any foreign corporation has no office or place of business in
the United States but has an agent in the United States, the return
required under section 6012 shall be made by the agent.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 282; Pub. L. 89-809, title I,
Sec. 104(b)(1), Nov. 13, 1966, 80 Stat. 1555; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L.
95-600, title III, Sec. 301(b)(13), Nov. 6, 1978, 92 Stat. 2822;
Pub. L. 96-499, title XI, Sec. 1122(c)(2), Dec. 5, 1980, 94 Stat.
2687; Pub. L. 97-424, title V, Sec. 515(b)(6)(F), Jan. 6, 1983, 96
Stat. 2182; Pub. L. 98-369, div. A, title IV, Sec. 474(r)(19), July
18, 1984, 98 Stat. 843; Pub. L. 99-514, title VII, Sec.
701(e)(4)(F), title XII, Sec. 1236(a), Oct. 22, 1986, 100 Stat.
2343, 2576; Pub. L. 100-647, title I, Sec. 1012(s)(2)(B), title II,
Sec. 2001(c)(2), title VI, Sec. 6133(a), Nov. 10, 1988, 102 Stat.
3527, 3594, 3721.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 2001(c)(2), inserted
reference to section 59A.
Subsec. (b). Pub. L. 100-647, Sec. 1012(s)(2)(B), inserted ",
except where the context clearly indicates otherwise" after
"foreign corporation".
Subsec. (e). Pub. L. 100-647, Sec. 6133(a), substituted "interest
on obligations of the United States which is not portfolio interest
(as defined in section 881(c)(2))" for "interest on obligations of
the United States", and struck out at end "The preceding sentence
shall not apply to any Guam corporation which is treated as not
being a foreign corporation by section 881(b)(1) for the taxable
year."
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 701(e)(4)(F),
inserted reference to section 55.
Subsec. (e). Pub. L. 99-514, Sec. 1236(a), inserted "The
preceding sentence shall not apply to any Guam corporation which is
treated as not being a foreign corporation by section 881(b)(1) for
the taxable year."
1984 - Subsec. (c)(2). Pub. L. 98-369 substituted reference to
section "33" for "32" and "34" for "39".
1983 - Subsec. (c)(2). Pub. L. 97-424 struck out "and lubricating
oil" after "gasoline".
1980 - Subsec. (a)(3). Pub. L. 96-499 added par. (3).
1978 - Subsec. (a). Pub. L. 95-600 substituted in subsec. (a)
heading "Imposition of tax" for "Normal tax and surtax" and in par.
(1) heading "In general" for "Imposition of tax".
1976 - Subsecs. (c)(1)(A), (2), (d). Pub. L. 94-455 struck out
"or his delegate" after "Secretary".
1966 - Pub. L. 89-809 substantially revised the income tax
treatment of foreign corporations, introduced the concept of
taxable income effectively connected with the conduct of a trade or
business within the United States into provisions dealing with the
imposition of tax, substituted a concept of gross income that
included gross income derived from sources within the United States
not effectively connected with the conduct of a trade or business
within the United States and gross income effectively connected
with the conduct of a trade or business within the United States
for a concept of gross income that included only gross income from
sources within the United States, and inserted provisions for an
election to treat real property income as income connected with
United States business, treatment of interest on United States
obligations received by banks organized in possessions, and the
returns of tax by agents, and inserted cross reference to section
906(b)(1).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 701(e)(4)(F) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Superfund Revenue
Act of 1986, Pub. L. 99-499, title V, to which it relates, see
section 2001(e) of Pub. L. 100-647, set out as a note under section
56 of this title.
Section 6133(c) of Pub. L. 100-647 provided that: "The amendments
made by this subsection [probably means 'this section', which
amended sections 882 and 884 of this title] shall apply to taxable
years beginning after December 31, 1988."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 701(e)(4)(F) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
Section 1236(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after November 16, 1985."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-424 applicable with respect to articles
sold after Jan. 6, 1983, see section 515(c) of Pub. L. 97-424, set
out as a note under section 34 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-499 applicable to disposition after June
18, 1980, see section 1125(a) of Pub. L. 96-499, set out as an
Effective Date note under section 897 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out
as a note under section 11 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(4)(F) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 11, 814, 864, 884, 887,
897, 906, 1442, 1445, 4373 of this title.
-FOOTNOTE-
(!1) Par. (3) heading editorially supplied.
-End-
-CITE-
26 USC Sec. 883 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
Sec. 883. Exclusions from gross income
-STATUTE-
(a) Income of foreign corporations from ships and aircraft
The following items shall not be included in gross income of a
foreign corporation, and shall be exempt from taxation under this
subtitle:
(1) Ships operated by certain foreign corporations
Gross income derived by a corporation organized in a foreign
country from the international operation of a ship or ships if
such foreign country grants an equivalent exemption to
corporations organized in the United States.
(2) Aircraft operated by certain foreign corporations
Gross income derived by a corporation organized in a foreign
country from the international operation of aircraft if such
foreign country grants an equivalent exemption to corporations
organized in the United States.
(3) Railroad rolling stock of foreign corporations
Earnings derived from payments by a common carrier for the use
on a temporary basis (not expected to exceed a total of 90 days
in any taxable year) of railroad rolling stock owned by a
corporation of a foreign country which grants an equivalent
exemption to corporations organized in the United States.
(4) Special rules
The rules of paragraphs (5), (6), and (7) of section 872(b)
shall apply for purposes of this subsection.
(5) Special rule for countries which tax on residence basis
For purposes of this subsection, there shall not be taken into
account any failure of a foreign country to grant an exemption to
a corporation organized in the United States if such corporation
is subject to tax by such foreign country on a residence basis
pursuant to provisions of foreign law which meets such standards
(if any) as the Secretary may prescribe.
(b) Earnings derived from communications satellite system
The earnings derived from the ownership or operation of a
communications satellite system by a foreign entity designated by a
foreign government to participate in such ownership or operation
shall be exempt from taxation under this subtitle, if the United
States, through its designated entity, participates in such system
pursuant to the Communications Satellite Act of 1962 (47 U.S.C. 701
and following).
(c) Treatment of certain foreign corporations
(1) In general
Paragraph (1) or (2) of subsection (a) (as the case may be)
shall not apply to any foreign corporation if 50 percent or more
of the value of the stock of such corporation is owned by
individuals who are not residents of such foreign country or
another foreign country meeting the requirements of such
paragraph.
(2) Treatment of controlled foreign corporations
Paragraph (1) shall not apply to any foreign corporation which
is a controlled foreign corporation (as defined in section
957(a)).
(3) Special rules for publicly traded corporations
(A) Exception
Paragraph (1) shall not apply to any corporation which is
organized in a foreign country meeting the requirements of
paragraph (1) or (2) of subsection (a) (as the case may be) and
the stock of which is primarily and regularly traded on an
established securities market in such foreign country, another
foreign country meeting the requirements of such paragraph, or
the United States.
(B) Treatment of stock owned by publicly traded corporation
Any stock in another corporation which is owned (directly or
indirectly) by a corporation meeting the requirements of
subparagraph (A) shall be treated as owned by individuals who
are residents of the foreign country in which the corporation
meeting the requirements of subparagraph (A) is organized.
(4) Stock ownership through entities
For purposes of paragraph (1), stock owned (directly or
indirectly) by or for a corporation, partnership, trust, or
estate shall be treated as being owned proportionately by its
shareholders, 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.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 283; Pub. L. 90-622, Sec. 1(a),
Oct. 22, 1968, 82 Stat. 1311; Pub. L. 94-164, Sec. 6(a), Dec. 23,
1975, 89 Stat. 975; Pub. L. 99-514, title XII, Sec. 1212(c)(3)-(5),
Oct. 22, 1986, 100 Stat. 2538; Pub. L. 100-647, title I, Sec.
1012(e)(1), (2)(A), (5), Nov. 10, 1988, 102 Stat. 3499, 3500; Pub.
L. 101-239, title VII, Sec. 7811(i)(8)(D), (10), Dec. 19, 1989, 103
Stat. 2411.)
-REFTEXT-
REFERENCES IN TEXT
The Communications Satellite Act of 1962, referred to in subsec.
(b), is Pub. L. 87-624, Aug. 31, 1962, 76 Stat. 419, as amended,
which is classified generally to chapter 6 (Sec. 701 et seq.) of
Title 47, Telegraphs, Telephones, and Radiotelegraphs. For complete
classification of this Act to the Code, see Short Title note set
out under section 701 of Title 47 and Tables.
-MISC1-
AMENDMENTS
1989 - Subsec. (a)(4). Pub. L. 101-239, Sec. 7811(i)(8)(D),
substituted "(5), (6), and (7)" for "(5) and (6)".
Subsec. (a)(5). Pub. L. 101-239, Sec. 7811(i)(10), added par.
(5).
1988 - Subsec. (a)(1), (2). Pub. L. 100-647, Sec. 1012(e)(2)(A),
(5), struck out "to citizens of the United States and" after
"exemption" and substituted "international operation" for
"operation".
Subsec. (c)(1). Pub. L. 100-647, Sec. 1012(e)(1)(B), substituted
"Paragraph (1) or (2) of subsection (a) (as the case may be)" for
"Paragraphs (1) and (2) of subsection (a)" and "such paragraph" for
"such paragraphs (1) and (2)".
Subsec. (c)(3). Pub. L. 100-647, Sec. 1012(e)(1)(A), substituted
"Special rules" for "Exception" in heading and amended text
generally. Prior to amendment, text read as follows: "Paragraph (1)
shall not apply to any foreign corporation -
"(A) the stock of which is primarily and regularly traded on an
established securities market in the foreign country in which
such corporation is organized, or
"(B) which is wholly owned (either directly or indirectly) by
another corporation meeting the requirements of subparagraph (A)
and is organized in the same foreign country as such other
corporation."
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1212(c)(3), added
par. (1) and struck out former par. (1), ships under foreign flag,
which read as follows: "Earnings derived from the operation of a
ship or ships documented under the laws of a foreign country which
grants an equivalent exemption to citizens of the United States and
to corporations organized in the United States."
Subsec. (a)(2). Pub. L. 99-514, Sec. 1212(c)(3), added par. (2)
and struck out former par. (2), aircraft of foreign registry, which
read as follows: "Earnings derived from the operation of aircraft
registered under the laws of a foreign country which grants an
equivalent exemption to citizens of the United States and to
corporations organized in the United States."
Subsec. (a)(4). Pub. L. 99-514, Sec. 1212(c)(4), added par. (4).
Subsec. (c). Pub. L. 99-514, Sec. 1212(c)(5), added subsec. (c).
1975 - Subsec. (a)(3). Pub. L. 94-164 added par. (3).
1968 - Pub. L. 90-622 designated existing provisions as subsec.
(a), added subsec. (a) heading, and added subsec. (b).
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1212(f) of Pub. L. 99-514, set out
as a note under section 863 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Section 6(b) of Pub. L. 94-164 provided that: "The amendment made
by this section [amending this section] shall apply to payments
made after November 18, 1974."
EFFECTIVE DATE OF 1968 AMENDMENT
Section 1(b) of Pub. L. 90-622 provided that: "The amendment made
by subsection (a) [amending this section] shall apply with respect
to taxable years beginning after December 31, 1966."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1212(c)(3)-(5) of Pub.
L. 99-514 to the extent application of such amendment would be
contrary to any treaty obligation of the United States in effect on
Oct. 22, 1986, with provision that for such purposes any amendment
by title I of Pub. L. 100-647 be treated as if it had been included
in the provision of Pub. L. 99-514 to which such amendment relates,
see section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 884, 887, 953 of this
title.
-End-
-CITE-
26 USC Sec. 884 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
Sec. 884. Branch profits tax
-STATUTE-
(a) Imposition of tax
In addition to the tax imposed by section 882 for any taxable
year, there is hereby imposed on any foreign corporation a tax
equal to 30 percent of the dividend equivalent amount for the
taxable year.
(b) Dividend equivalent amount
For purposes of subsection (a), the term "dividend equivalent
amount" means the foreign corporation's effectively connected
earnings and profits for the taxable year adjusted as provided in
this subsection:
(1) Reduction for increase in U.S. net equity
If -
(A) the U.S. net equity of the foreign corporation as of the
close of the taxable year, exceeds
(B) the U.S. net equity of the foreign corporation as of the
close of the preceding taxable year,
the effectively connected earnings and profits for the taxable
year shall be reduced (but not below zero) by the amount of such
excess.
(2) Increase for decrease in net equity
(A) In general
If -
(i) the U.S. net equity of the foreign corporation as of
the close of the preceding taxable year, exceeds
(ii) the U.S. net equity of the foreign corporation as of
the close of the taxable year,
the effectively connected earnings and profits for the taxable
year shall be increased by the amount of such excess.
(B) Limitation
(i) In general
The increase under subparagraph (A) for any taxable year
shall not exceed the accumulated effectively connected
earnings and profits as of the close of the preceding taxable
year.
(ii) Accumulated effectively connected earnings and profits
For purposes of clause (i), the term "accumulated
effectively connected earnings and profits" means the excess
of -
(I) the aggregate effectively connected earnings and
profits for preceding taxable years beginning after
December 31, 1986, over
(II) the aggregate dividend equivalent amounts determined
for such preceding taxable years.
(c) U.S. net equity
For purposes of this section -
(1) In general
The term "U.S. net equity" means -
(A) U.S. assets, reduced (including below zero) by
(B) U.S. liabilities.
(2) U.S. assets and U.S. liabilities
For purposes of paragraph (1) -
(A) U.S. assets
The term "U.S. assets" means the money and aggregate adjusted
bases of property of the foreign corporation treated as
connected with the conduct of a trade or business in the United
States under regulations prescribed by the Secretary. For
purposes of the preceding sentence, the adjusted basis of any
property shall be its adjusted basis for purposes of computing
earnings and profits.
(B) U.S. liabilities
The term "U.S. liabilities" means the liabilities of the
foreign corporation treated as connected with the conduct of a
trade or business in the United States under regulations
prescribed by the Secretary.
(C) Regulations to be consistent with allocation of deductions
The regulations prescribed under subparagraphs (A) and (B)
shall be consistent with the allocation of deductions under
section 882(c)(1).
(d) Effectively connected earnings and profits
For purposes of this section -
(1) In general
The term "effectively connected earnings and profits" means
earnings and profits (without diminution by reason of any
distributions made during the taxable year) which are
attributable to income which is effectively connected (or treated
as effectively connected) with the conduct of a trade or business
within the United States.
(2) Exception for certain income
The term "effectively connected earnings and profits" shall not
include any earnings and profits attributable to -
(A) income not includible in gross income under paragraph (1)
or (2) of section 883(a),
(B) income treated as effectively connected with the conduct
of a trade or business within the United States under section
921(d) or 926(b),(!1)
(C) gain on the disposition of a United States real property
interest described in section 897(c)(1)(A)(ii),
(D) income treated as effectively connected with the conduct
of a trade or business within the United States under section
953(c)(3)(C), or
(E) income treated as effectively connected with the conduct
of a trade or business within the United States under section
882(e).
Property and liabilities of the foreign corporation treated as
connected with such income under regulations prescribed by the
Secretary shall not be taken into account in determining the U.S.
assets or U.S. liabilities of the foreign corporation.
(e) Coordination with income tax treaties; etc.
(1) Limitation on treaty exemption
No treaty between the United States and a foreign country shall
exempt any foreign corporation from the tax imposed by subsection
(a) (or reduce the amount thereof) unless -
(A) such treaty is an income tax treaty, and
(B) such foreign corporation is a qualified resident of such
foreign country.
(2) Treaty modifications
If a foreign corporation is a qualified resident of a foreign
country with which the United States has an income tax treaty -
(A) the rate of tax under subsection (a) shall be the rate of
tax specified in such treaty -
(i) on branch profits if so specified, or
(ii) if not so specified, on dividends paid by a domestic
corporation to a corporation resident in such country which
wholly owns such domestic corporation, and
(B) any other limitations under such treaty on the tax
imposed by subsection (a) shall apply.
(3) Coordination with withholding tax
(A) In general
If a foreign corporation is subject to the tax imposed by
subsection (a) for any taxable year (determined after the
application of any treaty), no tax shall be imposed by section
871(a), 881(a), 1441, or 1442 on any dividends paid by such
corporation out of its earnings and profits for such taxable
year.
(B) Limitation on certain treaty benefits
If -
(i) any dividend described in section 861(a)(2)(B) is
received by a foreign corporation, and
(ii) subparagraph (A) does not apply to such dividend,
rules similar to the rules of subparagraphs (A) and (B) of
subsection (f)(3) shall apply to such dividend.
(4) Qualified resident
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the term
"qualified resident" means, with respect to any foreign
country, any foreign corporation which is a resident of such
foreign country unless -
(i) 50 percent or more (by value) of the stock of such
foreign corporation is owned (within the meaning of section
883(c)(4)) by individuals who are not residents of such
foreign country and who are not United States citizens or
resident aliens, or
(ii) 50 percent or more of its income is used (directly or
indirectly) to meet liabilities to persons who are not
residents of such foreign country or citizens or residents of
the United States.
(B) Special rule for publicly traded corporations
A foreign corporation which is a resident of a foreign
country shall be treated as a qualified resident of such
foreign country if -
(i) the stock of such corporation is primarily and
regularly traded on an established securities market in such
foreign country, or
(ii) such corporation is wholly owned (either directly or
indirectly) by another foreign corporation which is organized
in such foreign country and the stock of which is so traded.
(C) Corporations owned by publicly traded domestic corporations
A foreign corporation which is a resident of a foreign
country shall be treated as a qualified resident of such
foreign country if -
(i) such corporation is wholly owned (directly or
indirectly) by a domestic corporation, and
(ii) the stock of such domestic corporation is primarily
and regularly traded on an established securities market in
the United States.
(D) Secretarial authority
The Secretary may, in his sole discretion, treat a foreign
corporation as being a qualified resident of a foreign country
if such corporation establishes to the satisfaction of the
Secretary that such corporation meets such requirements as the
Secretary may establish to ensure that individuals who are not
residents of such foreign country do not use the treaty between
such foreign country and the United States in a manner
inconsistent with the purposes of this subsection.
(5) Exception for international organizations
This section shall not apply to an international organization
(as defined in section 7701(a)(18)).
(f) Treatment of interest allocable to effectively connected income
(1) In general
In the case of a foreign corporation engaged in a trade or
business in the United States (or having gross income treated as
effectively connected with the conduct of a trade or business in
the United States), for purposes of this subtitle -
(A) any interest paid by such trade or business in the United
States shall be treated as if it were paid by a domestic
corporation, and
(B) to the extent that the allocable interest exceeds the
interest described in subparagraph (A), such foreign
corporation shall be liable for tax under section 881(a) in the
same manner as if such excess were interest paid to such
foreign corporation by a wholly owned domestic corporation on
the last day of such foreign corporation's taxable year.
To the extent provided in regulations, subparagraph (A) shall not
apply to interest in excess of the amounts reasonably expected to
be allocable interest.
(2) Allocable interest
For purposes of this subsection, the term "allocable interest"
means any interest which is allocable to income which is
effectively connected (or treated as effectively connected) with
the conduct of a trade or business in the United States.
(3) Coordination with treaties
(A) Payor must be qualified resident
In the case of any interest described in paragraph (1) which
is paid or accrued by a foreign corporation, no benefit under
any treaty between the United States and the foreign country of
which such corporation is a resident shall apply unless -
(i) such treaty is an income tax treaty, and
(ii) such foreign corporation is a qualified resident of
such foreign country.
(B) Recipient must be qualified resident
In the case of any interest described in paragraph (1) which
is received or accrued by any corporation, no benefit under any
treaty between the United States and the foreign country of
which such corporation is a resident shall apply unless -
(i) such treaty is an income tax treaty, and
(ii) such foreign corporation is a qualified resident of
such foreign country.
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations providing for appropriate adjustments in the
determination of the dividend equivalent amount in connection with
the distribution to shareholders or transfer to a controlled
corporation of the taxpayer's U.S. assets and other adjustments in
such determination as are necessary or appropriate to carry out the
purposes of this section.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1241(a), Oct. 22, 1986, 100
Stat. 2576; amended Pub. L. 100-647, title I, Sec. 1012(q)(1)(A),
(2)-(6), (14), title VI, Sec. 6133(b), Nov. 10, 1988, 102 Stat.
3522-3525, 3721; Pub. L. 104-188, title I, Sec. 1704(f)(3)(A), Aug.
20, 1996, 110 Stat. 1879.)
-REFTEXT-
REFERENCES IN TEXT
Sections 921 and 926, referred to in subsec. (d)(2)(B), were
repealed by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
-MISC1-
PRIOR PROVISIONS
A prior section 884 was renumbered section 885 of this title.
AMENDMENTS
1996 - Subsec. (f)(1). Pub. L. 104-188, Sec. 1704(f)(3)(A)(ii),
substituted "reasonably expected to be allocable interest" for
"reasonably expected to be deductible under section 882 in
computing the effectively connected taxable income of such foreign
corporation" in closing provisions.
Subsec. (f)(1)(B). Pub. L. 104-188, Sec. 1704(f)(3)(A)(i),
substituted "to the extent that the allocable interest exceeds the
interest described in subparagraph (A)" for "to the extent the
amount of interest allowable as a deduction under section 882 in
computing the effectively connected taxable income of such foreign
corporation exceeds the interest described in subparagraph (A)".
Subsec. (f)(2). Pub. L. 104-188, Sec. 1704(f)(3)(A)(iii), amended
par. (2) generally. Prior to amendment, par. (2) read as follows:
"Effectively connected taxable income. - For purposes of this
subsection, the term 'effectively connected taxable income' means
taxable income which is effectively connected (or treated as
effectively connected) with the conduct of a trade or business
within the United States."
1988 - Subsec. (b)(2)(B). Pub. L. 100-647, Sec. 1012(q)(1)(A),
amended subpar. (B) generally. Prior to amendment, subpar. (B) read
as follows: "The increase under subparagraph (A) for any taxable
year shall not exceed the aggregate reductions under paragraph (1)
for prior taxable years to the extent not previously taken into
account under subparagraph (A)."
Subsec. (d)(2)(E). Pub. L. 100-647, Sec. 6133(b), added subpar.
(E).
Subsec. (e)(1). Pub. L. 100-647, Sec. 1012(q)(2)(A), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: "No
income tax treaty between the United States and a foreign country
shall exempt any foreign corporation from the tax imposed by
subsection (a) (or reduce the amount thereof) unless -
"(A) such foreign corporation is a qualified resident of such
foreign country, or
"(B) such foreign corporation is not a qualified resident of
such foreign country but such income tax treaty permits a
withholding tax on dividends described in section 861(a)(2)(B)
which are paid by such foreign corporation."
Subsec. (e)(3). Pub. L. 100-647, Sec. 1012(q)(2)(B), substituted
"withholding tax" for "2nd tier withholding tax" in heading and
amended text generally. Prior to amendment, text read as follows:
"(A) In general. - If a foreign corporation is not exempt for any
taxable year from the tax imposed by subsection (a) by reason of a
treaty, no tax shall be imposed by section 871(a), 881(a), 1441, or
1442 on any dividends paid by such corporation during the taxable
year.
"(B) Limitation on certain treaty benefits. - No foreign
corporation which is not a qualified resident of a foreign country
shall be entitled to claim benefits under any income tax treaty
between the United States and such foreign country with respect to
dividends -
"(i) which are paid by such foreign corporation and with
respect to which such foreign corporation is otherwise required
to deduct and withhold tax under section 1441 or 1442, or
"(ii) which are received by such foreign corporation and are
described in section 861(a)(2)(B)."
Subsec. (e)(4)(A)(i), (ii). Pub. L. 100-647, Sec. 1012(q)(5),
substituted "50 percent or more" for "more than 50 percent" in cl.
(i) and "citizens or residents of the United States" for "the
United States" in cl. (ii).
Subsec. (e)(4)(C), (D). Pub. L. 100-647, Sec. 1012(q)(4), added
subpar. (C) and redesignated former subpar. (C) as (D).
Subsec. (e)(5). Pub. L. 100-647, Sec. 1012(q)(6), added par. (5).
Subsec. (f)(1). Pub. L. 100-647, Sec. 1012(f)(3)(A), (14),
substituted "this subtitle" for "sections 871, 881, 1441, and 1442"
and inserted "(or having gross income treated as effectively
connected with the conduct of a trade or business in the United
States)" after "United States".
Pub. L. 100-647, Sec. 1012(q)(2)(C)(i), (3)(B), inserted sentence
at end and struck out former last sentence which read as follows:
"Rules similar to the rules of subsection (e)(3)(B) shall apply to
interest described in the preceding sentence."
Subsec. (f)(3). Pub. L. 100-647, Sec. 1012(q)(2)(C)(ii), added
par. (3).
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1704(f)(3)(B) of Pub. L. 104-188 provided that: "The
amendments made by subparagraph (A) [amending this section] shall
take effect as if included in the amendments made by section
1241(a) of the Tax Reform Act of 1986 [Pub. L. 99-514]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1012(q)(1)(A), (2)-(6), (14) of Pub. L.
100-647 effective, except as otherwise provided, as if included in
the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L.
100-647, set out as a note under section 1 of this title.
Amendment by section 6133(b) of Pub. L. 100-647 applicable to
taxable years beginning after Dec. 31, 1988, see section 6133(c) of
Pub. L. 100-647, set out as a note under section 882 of this title.
EFFECTIVE DATE
Section 1241(e) of Pub. L. 99-514 provided that: "The amendments
made by this section [enacting section 884 of this title,
renumbering former section 884 as section 885 of this title, and
amending sections 861 and 906 of this title] shall apply to taxable
years beginning after December 31, 1986."
DETERMINATION OF EARNINGS AND PROFITS OF FOREIGN CORPORATIONS
Section 1012(q)(1)(B) of Pub. L. 100-647, as amended by Pub. L.
101-239, title VII, Sec. 7811(i)(5), Dec. 19, 1989, 103 Stat. 2410,
provided that: "For purposes of applying section 884 of the 1986
Code, the earnings and profits of any corporation shall be
determined without regard to any increase in earnings and profits
under sections 1023(e)(3)(C) [section 1023(e)(3)(C) of Pub. L.
99-514, set out as an Effective Date note under section 846 of this
title] and 1021(c)(2)(C) of the Reform Act [Pub. L. 99-514, set out
as an Effective Date of 1986 Amendment note under section 832 of
this title] or arising from section 832(b)(4)(C) of the 1986 Code."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1241(a) of Pub. L.
99-514 (enacting this section) to the extent application of such
amendment would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 26, 163, 861, 906, 952,
953 of this title; title 48 section 1421i.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 885 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
Sec. 885. Cross references
-STATUTE-
(1) For special provisions relating to foreign corporations
carrying on an insurance business within the United States, see
section 842.
(2) For rules applicable in determining whether any foreign
corporation is engaged in trade or business within the United
States, see section 864(b).
(3) For adjustment of tax in case of corporations of certain
foreign countries, see section 896.
(4) For allowance of credit against the tax in case of a
foreign corporation having income effectively connected with
the conduct of a trade or business within the United States,
see section 906.
(5) For withholding at source of tax on income of foreign
corporations, see section 1442.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 283, Sec. 884; Pub. L. 89-809,
title I, Sec. 104(m)(1), Nov. 13, 1966, 80 Stat. 1563; Pub. L.
91-172, title I, Sec. 101(j)(21), Dec. 30, 1969, 83 Stat. 528;
renumbered Sec. 885, Pub. L. 99-514, title XII, Sec. 1241(a), Oct.
22, 1986, 100 Stat. 2576.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 renumbered section 884 of this title as
this section.
1969 - Pub. L. 91-172 redesignated pars. (2) to (6) as (1) to
(5), respectively. Former par. (1), referring to section 512(a),
was struck out.
1966 - Par. (1). Pub. L. 89-809 redesignated par. (4) as (1).
Former par. (1) redesignated (6).
Par. (2). Pub. L. 89-809 redesignated par. (3) as (2) and
substituted "foreign corporations carrying on an insurance business
within the United States, see section 842" for "foreign insurance
companies, see subchapter L (sec. 801 and following)". Former par.
(2) redesignated (3).
Par. (3). Pub. L. 89-809 redesignated former par. (2) as (3) and,
in par. (3) as so redesignated, substituted "section 864(b)" for
"section 871(c)". Former par. (3) redesignated (2).
Pars. (4), (5). Pub. L. 89-809 added pars. (4) and (5). Former
par. (4) redesignated (1).
Par. (6). Pub. L. 89-809 redesignated former par. (1) as (6).
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 101(k)(2)(B) of Pub. L. 91-172,
set out as an Effective Date note under section 4940 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
-End-
-CITE-
26 USC Subpart C - Tax on Gross Transportation Income 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart C - Tax on Gross Transportation Income
-HEAD-
SUBPART C - TAX ON GROSS TRANSPORTATION INCOME
-MISC1-
Sec.
887. Imposition of tax on gross transportation income of
nonresident aliens and foreign corporations.
-End-
-CITE-
26 USC Sec. 887 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart C - Tax on Gross Transportation Income
-HEAD-
Sec. 887. Imposition of tax on gross transportation income of
nonresident aliens and foreign corporations
-STATUTE-
(a) Imposition of tax
In the case of any nonresident alien individual or foreign
corporation, there is hereby imposed for each taxable year a tax
equal to 4 percent of such individual's or corporation's United
States source gross transportation income for such taxable year.
(b) United States source gross transportation income
(1) In general
Except as provided in paragraphs (2) and (3), the term "United
States source gross transportation income" means any gross income
which is transportation income (as defined in section 863(c)(3))
to the extent such income is treated as from sources in the
United States under section 863(c)(2). To the extent provided in
regulations, such term does not include any income of a kind to
which an exemption under paragraph (1) or (2) of section 883(a)
would not apply.
(2) Exception for certain income effectively connected with
business in the United States
The term "United States source gross transportation income"
shall not include any income taxable under section 871(b) or 882.
(3) Exception for certain income taxable in possessions
The term "United States source gross transportation income"
does not include any income taxable in a possession of the United
States under the provisions of this title as made applicable in
such possession.
(4) Determination of effectively connected income
For purposes of this chapter, United States source gross
transportation income of any taxpayer shall not be treated as
effectively connected with the conduct of a trade or business in
the United States unless -
(A) the taxpayer has a fixed place of business in the United
States involved in the earning of United States source gross
transportation income, and
(B) substantially all of the United States source gross
transportation income (determined without regard to paragraph
(2)) of the taxpayer is attributable to regularly scheduled
transportation (or, in the case of income from the leasing of a
vessel or aircraft, is attributable to a fixed place of
business in the United States).
(c) Coordination with other provisions
Any income taxable under this section shall not be taxable under
section 871, 881, or 882.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1212(b)(1), Oct. 22, 1986,
100 Stat. 2537; amended Pub. L. 100-647, title I, Sec. 1012(e)(6),
Nov. 10, 1988, 102 Stat. 3500; Pub. L. 101-239, title VII, Sec.
7811(i)(8)(A), (B), (9), Dec. 19, 1989, 103 Stat. 2410, 2411.)
-MISC1-
AMENDMENTS
1989 - Subsec. (b)(1). Pub. L. 101-239, Sec. 7811(i)(8)(B),
substituted "paragraphs (2) and (3)" for "paragraph (2)".
Subsec. (b)(3). Pub. L. 101-239, Sec. 7811(i)(8)(A), added par.
(3). Former par. (3) redesignated (4).
Subsec. (b)(4). Pub. L. 101-239, Sec. 7811(i)(8)(A), (9),
redesignated former par. (3) as (4) and substituted "United States
source gross transportation income" for "transportation income" in
introductory provisions and in subpar. (A).
1988 - Subsec. (b)(1). Pub. L. 100-647 substituted "under section
863(c)(2)" for "under section 863(c)" and inserted at end "To the
extent provided in regulations, such term does not include any
income of a kind to which an exemption under paragraph (1) or (2)
of section 883(a) would not apply."
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, see section 1212(f) of Pub. L. 99-514, set out as an
Effective Date of 1986 Amendment note under section 863 of this
title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1212(b)(1) of Pub. L.
99-514 (enacting this section) to the extent application of such
amendment would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 6655 of this title.
-End-
-CITE-
26 USC Subpart D - Miscellaneous Provisions 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
SUBPART D - MISCELLANEOUS PROVISIONS
-MISC1-
Sec.
891. Doubling of rates of tax on citizens and corporations
of certain foreign countries.
892. Income of foreign governments and of international
organizations.
893. Compensation of employees of foreign governments or
international organizations.
894. Income affected by treaty.
895. Income derived by a foreign central bank of issue from
obligations of the United States or from bank
deposits.
896. Adjustment of tax on nationals, residents, and
corporations of certain foreign countries.
897. Disposition of investment in United States real
property.
898. Taxable year of certain foreign corporations.
AMENDMENTS
1989 - Pub. L. 101-239, title VII, Sec. 7401(c), Dec. 19, 1989,
103 Stat. 2357, added item 898.
1986 - Pub. L. 99-514, title XII, Sec. 1212(b)(1), Oct. 22, 1986,
100 Stat. 2537, redesignated former subpart (C) as (D).
1980 - Pub. L. 96-499, title XI, Sec. 1122(b), Dec. 5, 1980, 94
Stat. 2687, added item 897.
1966 - Pub. L. 89-809, title I, Secs. 102(a)(4)(B), 105(c), Nov.
13, 1966, 80 Stat. 1543, 1565, substituted "affected by treaty" for
"exempt under treaty" in item 894, inserted "or from bank deposits"
in item 895, and added item 896.
1961 - Pub. L. 87-29, Sec. 1(b), May 4, 1961, 75 Stat. 64, added
item 895.
-End-
-CITE-
26 USC Sec. 891 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 891. Doubling of rates of tax on citizens and corporations of
certain foreign countries
-STATUTE-
Whenever the President finds that, under the laws of any foreign
country, citizens or corporations of the United States are being
subjected to discriminatory or extraterritorial taxes, the
President shall so proclaim and the rates of tax imposed by
sections 1, 3, 11, 801, 831, 852, 871, and 881 shall, for the
taxable year during which such proclamation is made and for each
taxable year thereafter, be doubled in the case of each citizen and
corporation of such foreign country; but the tax at such doubled
rate shall be considered as imposed by such sections as the case
may be. In no case shall this section operate to increase the taxes
imposed by such sections (computed without regard to this section)
to an amount in excess of 80 percent of the taxable income of the
taxpayer (computed without regard to the deductions allowable under
section 151 and under part VIII of subchapter B). Whenever the
President finds that the laws of any foreign country with respect
to which the President has made a proclamation under the preceding
provisions of this section have been modified so that
discriminatory and extraterritorial taxes applicable to citizens
and corporations of the United States have been removed, he shall
so proclaim, and the provisions of this section providing for
doubled rates of tax shall not apply to any citizen or corporation
of such foreign country with respect to any taxable year beginning
after such proclamation is made.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 283; Mar. 13, 1956, ch. 83, Sec.
5(6), 70 Stat. 49; Pub. L. 86-69, Sec. 3(f)(1), June 25, 1959, 73
Stat. 140; Pub. L. 98-369, div. A, title II, Sec. 211(b)(12), July
18, 1984, 98 Stat. 755; Pub. L. 99-514, title X, Sec. 1024(c)(13),
Oct. 22, 1986, 100 Stat. 2408.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 struck out reference to section 821.
1984 - Pub. L. 98-369 substituted "801" for "802".
1959 - Pub. L. 86-69 struck out reference to section 811.
1956 - Act Mar. 13, 1956, inserted reference to section 811.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out
as a note under section 831 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1959 AMENDMENT
Amendment by Pub. L. 86-69 applicable only with respect to
taxable years beginning after Dec. 31, 1957, see section 4 of Pub.
L. 86-69, set out an Effective Date note under section 381 of this
title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 5, 12, 881 of this title.
-End-
-CITE-
26 USC Sec. 892 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 892. Income of foreign governments and of international
organizations
-STATUTE-
(a) Foreign governments
(1) In general
The income of foreign governments received from -
(A) investments in the United States in -
(i) stocks, bonds, or other domestic securities owned by
such foreign governments, or
(ii) financial instruments held in the execution of
governmental financial or monetary policy, or
(B) interest on deposits in banks in the United States of
moneys belonging to such foreign governments,
shall not be included in gross income and shall be exempt from
taxation under this subtitle.
(2) Income received directly or indirectly from commercial
activities
(A) In general
Paragraph (1) shall not apply to any income -
(i) derived from the conduct of any commercial activity
(whether within or outside the United States),
(ii) received by a controlled commercial entity or received
(directly or indirectly) from a controlled commercial entity,
or
(iii) derived from the disposition of any interest in a
controlled commercial entity.
(B) Controlled commercial entity
For purposes of subparagraph (A), the term "controlled
commercial entity" means any entity engaged in commercial
activities (whether within or outside the United States) if the
government -
(i) holds (directly or indirectly) any interest in such
entity which (by value or voting interest) is 50 percent or
more of the total of such interests in such entity, or
(ii) holds (directly or indirectly) any other interest in
such entity which provides the foreign government with
effective control of such entity.
For purposes of the preceding sentence, a central bank of issue
shall be treated as a controlled commercial entity only if
engaged in commercial activities within the United States.
(3) Treatment as resident
For purposes of this title, a foreign government shall be
treated as a corporate resident of its country. A foreign
government shall be so treated for purposes of any income tax
treaty obligation of the United States if such government grants
equivalent treatment to the Government of the United States.
(b) International organizations
The income of international organizations received from
investments in the United States in stocks, bonds, or other
domestic securities owned by such international organizations, or
from interest on deposits in banks in the United States of moneys
belonging to such international organizations, or from any other
source within the United States, shall not be included in gross
income and shall be exempt from taxation under this subtitle.
(c) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 284; Pub. L. 99-514, title XII,
Sec. 1247(a), Oct. 22, 1986, 100 Stat. 2583; Pub. L. 100-647, title
I, Sec. 1012(t)(1)-(3), Nov. 10, 1988, 102 Stat. 3527; Pub. L.
101-508, title XI, Sec. 11704(a)(35), Nov. 5, 1990, 104 Stat.
1388-519.)
-MISC1-
AMENDMENTS
1990 - Subsec. (a)(2)(A). Pub. L. 101-508 made clarifying
amendment to Pub. L. 100-647, Sec. 1012(t)(1). See 1988 Amendment
note below.
1988 - Subsec. (a)(2)(A). Pub. L. 100-647, Sec. 1012(t)(1), (2),
as amended by Pub. L. 101-508, amended cl. (ii) generally and added
cl. (iii). Prior to amendment, cl. (ii) read as follows: "received
from or by a controlled commercial entity."
Subsec. (a)(3). Pub. L. 100-647, Sec. 1012(t)(3), added par. (3).
1986 - Pub. L. 99-514 amended section generally. Prior to
amendment, section read as follows: "The income of foreign
governments or international organizations received from
investments in the United States in stocks, bonds, or other
domestic securities, owned by such foreign governments or by
international organizations, or from interest on deposits in banks
in the United States of moneys belonging to such foreign
governments or international organizations, or from any other
source within the United States, shall not be included in gross
income and shall be exempt from taxation under this subtitle."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1247(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts received on or after July 1, 1986, except that no amount
shall be required to be deducted and withheld by reason of the
amendment made by subsection (a) from any payment made before the
date of the enactment of this Act [Oct. 22, 1986]."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1247(a) of Pub. L.
99-514 to the extent application of such amendment would be
contrary to any treaty obligation of the United States in effect on
Oct. 22, 1986, with provision that for such purposes any amendment
by title I of Pub. L. 100-647 be treated as if it had been included
in the provision of Pub. L. 99-514 to which such amendment relates,
see section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 893 of this title.
-End-
-CITE-
26 USC Sec. 893 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 893. Compensation of employees of foreign governments or
international organizations
-STATUTE-
(a) Rule for exclusion
Wages, fees, or salary of any employee of a foreign government or
of an international organization (including a consular or other
officer, or a nondiplomatic representative), received as
compensation for official services to such government or
international organization shall not be included in gross income
and shall be exempt from taxation under this subtitle if -
(1) such employee is not a citizen of the United States, or is
a citizen of the Republic of the Philippines (whether or not a
citizen of the United States); and
(2) in the case of an employee of a foreign government, the
services are of a character similar to those performed by
employees of the Government of the United States in foreign
countries; and
(3) in the case of an employee of a foreign government, the
foreign government grants an equivalent exemption to employees of
the Government of the United States performing similar services
in such foreign country.
(b) Certificate by Secretary of State
The Secretary of State shall certify to the Secretary of the
Treasury the names of the foreign countries which grant an
equivalent exemption to the employees of the Government of the
United States performing services in such foreign countries, and
the character of the services performed by employees of the
Government of the United States in foreign countries.
(c) Limitation on exclusion
Subsection (a) shall not apply to -
(1) any employee of a controlled commercial entity (as defined
in section 892(a)(2)(B)), or
(2) any employee of a foreign government whose services are
primarily in connection with a commercial activity (whether
within or outside the United States) of the foreign government.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 284; Pub. L. 100-647, title I,
Sec. 1012(t)(4), Nov. 10, 1988, 102 Stat. 3527.)
-MISC1-
AMENDMENTS
1988 - Subsec. (c). Pub. L. 100-647 added subsec. (c).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
-End-
-CITE-
26 USC Sec. 894 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 894. Income affected by treaty
-STATUTE-
(a) Treaty provisions
(1) In general
The provisions of this title shall be applied to any taxpayer
with due regard to any treaty obligation of the United States
which applies to such taxpayer.
(2) Cross reference
For relationship between treaties and this title, see section
7852(d).
(b) Permanent establishment in United States
For purposes of applying any exemption from, or reduction of, any
tax provided by any treaty to which the United States is a party
with respect to income which is not effectively connected with the
conduct of a trade or business within the United States, a
nonresident alien individual or a foreign corporation shall be
deemed not to have a permanent establishment in the United States
at any time during the taxable year. This subsection shall not
apply in respect of the tax computed under section 877(b).
(c) Denial of treaty benefits for certain payments through hybrid
entities
(1) Application to certain payments
A foreign person shall not be entitled under any income tax
treaty of the United States with a foreign country to any reduced
rate of any withholding tax imposed by this title on an item of
income derived through an entity which is treated as a
partnership (or is otherwise treated as fiscally transparent) for
purposes of this title if -
(A) such item is not treated for purposes of the taxation
laws of such foreign country as an item of income of such
person,
(B) the treaty does not contain a provision addressing the
applicability of the treaty in the case of an item of income
derived through a partnership, and
(C) the foreign country does not impose tax on a distribution
of such item of income from such entity to such person.
(2) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to determine the extent to which a
taxpayer to which paragraph (1) does not apply shall not be
entitled to benefits under any income tax treaty of the United
States with respect to any payment received by, or income
attributable to any activities of, an entity organized in any
jurisdiction (including the United States) that is treated as a
partnership or is otherwise treated as fiscally transparent for
purposes of this title (including a common investment trust under
section 584, a grantor trust, or an entity that is disregarded
for purposes of this title) and is treated as fiscally
nontransparent for purposes of the tax laws of the jurisdiction
of residence of the taxpayer.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 284; Pub. L. 89-809, title I,
Sec. 105(a), Nov. 13, 1966, 80 Stat. 1563; Pub. L. 100-647, title
I, Sec. 1012(aa)(6), Nov. 10, 1988, 102 Stat. 3533; Pub. L. 105-34,
title X, Sec. 1054(a), Aug. 5, 1997, 111 Stat. 943.)
-MISC1-
AMENDMENTS
1997 - Subsec. (c). Pub. L. 105-34 added subsec. (c).
1988 - Subsec. (a). Pub. L. 100-647 substituted "Treaty
provisions" for "Income affected by treaty" in heading and amended
text generally. Prior to amendment, text read as follows: "Income
of any kind, to the extent required by any treaty obligation of the
United States, shall not be included in gross income and shall be
exempt from taxation under this subtitle."
1966 - Pub. L. 89-809 designated existing provisions as subsec.
(a), added subsec. (b), and substituted "affected by treaty" for
"exempt under treaty" in section catchline.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1054(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply upon the
date of enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 105(d) of Pub. L. 89-809 provided that: "The amendments
made by this section (other than subsections (d) and (f)) [amending
this section and enacting section 896 of this title] shall apply
with respect to taxable years beginning after December 31, 1966."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 269B, 643, 842 of this
title.
-End-
-CITE-
26 USC Sec. 895 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 895. Income derived by a foreign central bank of issue from
obligations of the United States or from bank deposits
-STATUTE-
Income derived by a foreign central bank of issue from
obligations of the United States or of any agency or
instrumentality thereof (including beneficial interests,
participations, and other instruments issued under section 302(c)
of the Federal National Mortgage Association Charter Act (12 U.S.C.
1717)) which are owned by such foreign central bank of issue, or
derived from interest on deposits with persons carrying on the
banking business, shall not be included in gross income and shall
be exempt from taxation under this subtitle unless such obligations
or deposits are held for, or used in connection with, the conduct
of commercial banking functions or other commercial activities. For
purposes of the preceding sentence the Bank for International
Settlements shall be treated as a foreign central bank of issue.
-SOURCE-
(Added Pub. L. 87-29, Sec. 1(a), May 4, 1961, 75 Stat. 64; amended
Pub. L. 89-809, title I, Sec. 102(a)(4)(A), Nov. 13, 1966, 80 Stat.
1543.)
-MISC1-
AMENDMENTS
1966 - Pub. L. 89-809 exempted income derived from obligations of
agencies or instrumentalities of the United States and income
derived from interest on deposits with persons carrying on the
banking business, inserted "(including beneficial interests,
participations, and other instruments issued under section 302(c)
of the Federal National Mortgage Association Charter Act (12 U.S.C.
1717))," and inserted sentence requiring the Bank for International
Settlements to be treated as a foreign central bank of issue.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, except that in applying
section 864(c)(4)(B)(iii) of this title with respect to a binding
contract entered into on or before Feb. 24, 1966, activities in the
United States on or before such date in negotiating or carrying out
such contract shall not be taken into account, see section
102(e)(1) of Pub. L. 89-809, set out as a note under section 861 of
this title.
EFFECTIVE DATE
Section 1(c) of Pub. L. 87-29 provided that: "The amendments made
by subsections (a) and (b) [enacting this section and amending
analysis preceding section 891 of this title] shall be effective
with respect to income received in taxable years beginning after
December 31, 1960."
-End-
-CITE-
26 USC Sec. 896 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 896. Adjustment of tax on nationals, residents, and
corporations of certain foreign countries
-STATUTE-
(a) Imposition of more burdensome taxes by foreign country
Whenever the President finds that -
(1) under the laws of any foreign country, considering the tax
system of such foreign country, citizens of the United States not
residents of such foreign country or domestic corporations are
being subjected to more burdensome taxes, on any item of income
received by such citizens or corporations from sources within
such foreign country, than taxes imposed by the provisions of
this subtitle on similar income derived from sources within the
United States by residents or corporations of such foreign
country,
(2) such foreign country, when requested by the United States
to do so, has not acted to revise or reduce such taxes so that
they are no more burdensome than taxes imposed by the provisions
of this subtitle on similar income derived from sources within
the United States by residents or corporations of such foreign
country, and
(3) it is in the public interest to apply pre-1967 tax
provisions in accordance with the provisions of this subsection
to residents or corporations of such foreign country,
the President shall proclaim that the tax on such similar income
derived from sources within the United States by residents or
corporations of such foreign country shall, for taxable years
beginning after such proclamation, be determined under this
subtitle without regard to amendments made to this subchapter and
chapter 3 on or after the date of enactment of this section.
(b) Imposition of discriminatory taxes by foreign country
Whenever the President finds that -
(1) under the laws of any foreign country, citizens of the
United States or domestic corporations (or any class of such
citizens or corporations) are, with respect to any item of
income, being subjected to a higher effective rate of tax than
are nationals, residents, or corporations of such foreign country
(or a similar class of such nationals, residents, or
corporations) under similar circumstances;
(2) such foreign country, when requested by the United States
to do so, has not acted to eliminate such higher effective rate
of tax; and
(3) it is in the public interest to adjust, in accordance with
the provisions of this subsection, the effective rate of tax
imposed by this subtitle on similar income of nationals,
residents, or corporations of such foreign country (or such
similar class of such nationals, residents, or corporations),
the President shall proclaim that the tax on similar income of
nationals, residents, or corporations of such foreign country (or
such similar class of such nationals, residents, or corporations)
shall, for taxable years beginning after such proclamation, be
adjusted so as to cause the effective rate of tax imposed by this
subtitle on such similar income to be substantially equal to the
effective rate of tax imposed by such foreign country on such item
of income of citizens of the United States or domestic corporations
(or such class of citizens or corporations). In implementing a
proclamation made under this subsection, the effective rate of tax
imposed by this subtitle on an item of income may be adjusted by
the disallowance, in whole or in part, of any deduction, credit, or
exemption which would otherwise be allowed with respect to that
item of income or by increasing the rate of tax otherwise
applicable to that item of income.
(c) Alleviation of more burdensome or discriminatory taxes
Whenever the President finds that -
(1) the laws of any foreign country with respect to which the
President has made a proclamation under subsection (a) have been
modified so that citizens of the United States not residents of
such foreign country or domestic corporations are no longer
subject to more burdensome taxes on the item of income derived by
such citizens or corporations from sources within such foreign
country, or
(2) the laws of any foreign country with respect to which the
President has made a proclamation under subsection (b) have been
modified so that citizens of the United States or domestic
corporations (or any class of such citizens or corporations) are
no longer subject to a higher effective rate of tax on the item
of income,
he shall proclaim that the tax imposed by this subtitle on the
similar income of nationals, residents, or corporations of such
foreign country shall, for any taxable year beginning after such
proclamation, be determined under this subtitle without regard to
such subsection.
(d) Notification of Congress required
No proclamation shall be issued by the President pursuant to this
section unless, at least 30 days prior to such proclamation, he has
notified the Senate and the House of Representatives of his
intention to issue such proclamation.
(e) Implementation by regulations
The Secretary shall prescribe such regulations as he deems
necessary or appropriate to implement this section.
-SOURCE-
(Added Pub. L. 89-809, title I, Sec. 105(b), Nov. 13, 1966, 80
Stat. 1563; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834.)
-REFTEXT-
REFERENCES IN TEXT
The date of enactment of this section, referred to in the
provisions following subsec. (a)(3), is the date of enactment of
Pub. L. 89-809, which was approved Nov. 13, 1966.
-MISC1-
AMENDMENTS
1976 - Subsec. (e). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE
Section applicable with respect to taxable years beginning after
Dec. 31, 1966, see section 105(d) of Pub. L. 89-809, set out as an
Effective Date of 1966 Amendment note under section 894 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 885 of this title.
-End-
-CITE-
26 USC Sec. 897 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 897. Disposition of investment in United States real property
-STATUTE-
(a) General rule
(1) Treatment as effectively connected with United States trade
or business
For purposes of this title, gain or loss of a nonresident alien
individual or a foreign corporation from the disposition of a
United States real property interest shall be taken into account
-
(A) in the case of a nonresident alien individual, under
section 871(B)(1), or
(B) in the case of a foreign corporation, under section
882(a)(1),
as if the taxpayer were engaged in a trade or business within the
United States during the taxable year and as if such gain or loss
were effectively connected with such trade or business.
(2) Minimum tax on nonresident alien individuals
(A) In general
In the case of any nonresident alien individual, the taxable
excess for purposes of section 55(b)(1)(A) shall not be less
than the lesser of -
(i) the individual's alternative minimum taxable income (as
defined in section 55(b)(2)) for the taxable year, or
(ii) the individual's net United States real property gain
for the taxable year.
(B) Net United States real property gain
For purposes of subparagraph (A), the term "net United States
real property gain" means the excess of -
(i) the aggregate of the gains for the taxable year from
dispositions of United States real property interests, over
(ii) the aggregate of the losses for the taxable year from
dispositions of such interests.
(b) Limitation on losses of individuals
In the case of an individual, a loss shall be taken into account
under subsection (a) only to the extent such loss would be taken
into account under section 165(c) (determined without regard to
subsection (a) of this section).
(c) United States real property interest
For purposes of this section -
(1) United States real property interest
(A) In general
Except as provided in subparagraph (B), the term "United
States real property interest" means -
(i) an interest in real property (including an interest in
a mine, well, or other natural deposit) located in the United
States or the Virgin Islands, and
(ii) any interest (other than an interest solely as a
creditor) in any domestic corporation unless the taxpayer
establishes (at such time and in such manner as the Secretary
by regulations prescribes) that such corporation was at no
time a United States real property holding corporation during
the shorter of -
(I) the period after June 18, 1980, during which the
taxpayer held such interest, or
(II) the 5-year period ending on the date of the
disposition of such interest.
(B) Exclusion for interest in certain corporations
The term "United States real property interest" does not
include any interest in a corporation if -
(i) as of the date of the disposition of such interest,
such corporation did not hold any United States real property
interests, and
(ii) all of the United States real property interests held
by such corporation at any time during the shorter of the
periods described in subparagraph (A)(ii) -
(I) were disposed of in transactions in which the full
amount of the gain (if any) was recognized, or
(II) ceased to be United States real property interests
by reason of the application of this subparagraph to 1 or
more other corporations.
(2) United States real property holding corporation
The term "United States real property holding corporation"
means any corporation if -
(A) the fair market value of its United States real property
interests equals or exceeds 50 percent of
(B) the fair market value of -
(i) its United States real property interests,
(ii) its interests in real property located outside the
United States, plus
(iii) any other of its assets which are used or held for
use in a trade or business.
(3) Exception for stock regularly traded on established
securities markets
If any class of stock of a corporation is regularly traded on
an established securities market, stock of such class shall be
treated as a United States real property interest only in the
case of a person who, at some time during the shorter of the
periods described in paragraph (1)(A)(ii), held more than 5
percent of such class of stock.
(4) Interests held by foreign corporations and by partnerships,
trusts, and estates
For purposes of determining whether any corporation is a United
States real property holding corporation -
(A) Foreign corporations
Paragraph (1)(A)(ii) shall be applied by substituting "any
corporation (whether foreign or domestic)" for "any domestic
corporation".
(B) Interests held by partnerships, etc.
Under regulations prescribed by the Secretary, assets held by
a partnership, trust, or estate shall be treated as held
proportionately by its partners or beneficiaries. Any asset
treated as held by a partner or beneficiary by reason of this
subparagraph which is used or held for use by the partnership,
trust, or estate in a trade or business shall be treated as so
used or held by the partner or beneficiary. Any asset treated
as held by a partner or beneficiary by reason of this
subparagraph shall be so treated for purposes of applying this
subparagraph successively to partnerships, trusts, or estates
which are above the first partnership, trust, or estate in a
chain thereof.
(5) Treatment of controlling interests
(A) In general
Under regulations, for purposes of determining whether any
corporation is a United States real property holding
corporation, if any corporation (hereinafter in this paragraph
referred to as the "first corporation") holds a controlling
interest in a second corporation -
(i) the stock which the first corporation holds in the
second corporation shall not be taken into account,
(ii) the first corporation shall be treated as holding a
portion of each asset of the second corporation equal to the
percentage of the fair market value of the stock of the
second corporation represented by the stock held by the first
corporation, and
(iii) any asset treated as held by the first corporation by
reason of clause (ii) which is used or held for use by the
second corporation in a trade or business shall be treated as
so used or held by the first corporation.
Any asset treated as held by the first corporation by reason of
the preceding sentence shall be so treated for purposes of
applying the preceding sentence successively to corporations
which are above the first corporation in a chain of
corporations.
(B) Controlling interest
For purposes of subparagraph (A), the term "controlling
interest" means 50 percent or more of the fair market value of
all classes of stock of a corporation.
(6) Other special rules
(A) Interest in real property
The term "interest in real property" includes fee ownership
and co-ownership of land or improvements thereon, leaseholds of
land or improvements thereon, options to acquire land or
improvements thereon, and options to acquire leaseholds of land
or improvements thereon.
(B) Real property includes associated personal property
The term "real property" includes movable walls, furnishings,
and other personal property associated with the use of the real
property.
(C) Constructive ownership rules
For purposes of determining under paragraph (3) whether any
person holds more than 5 percent of any class of stock and of
determining under paragraph (5) whether a person holds a
controlling interest in any corporation, section 318(a) shall
apply (except that paragraphs (2)(C) and (3)(C) of section
318(a) shall be applied by substituting "5 percent" for "50
percent").
(d) Treatment of distributions by foreign corporations
(1) In general
Except to the extent otherwise provided in regulations,
notwithstanding any other provision of this chapter, gain shall
be recognized by a foreign corporation on the distribution
(including a distribution in liquidation or redemption) of a
United States real property interest in an amount equal to the
excess of the fair market value of such interest (as of the time
of the distribution) over its adjusted basis.
(2) Exceptions
Gain shall not be recognized under paragraph (1) -
(A) if -
(i) at the time of the receipt of the distributed property,
the distributee would be subject to taxation under this
chapter on a subsequent disposition of the distributed
property, and
(ii) the basis of the distributed property in the hands of
the distributee is no greater than the adjusted basis of such
property before the distribution, increased by the amount of
gain (if any) recognized by the distributing corporation, or
(B) if such nonrecognition is provided in regulations
prescribed by the Secretary under subsection (e)(2).
(e) Coordination with nonrecognition provisions
(1) In general
Except to the extent otherwise provided in subsection (d) and
paragraph (2) of this subsection, any nonrecognition provision
shall apply for purposes of this section to a transaction only in
the case of an exchange of a United States real property interest
for an interest the sale of which would be subject to taxation
under this chapter.
(2) Regulations
The Secretary shall prescribe regulations (which are necessary
or appropriate to prevent the avoidance of Federal income taxes)
providing -
(A) the extent to which nonrecognition provisions shall, and
shall not, apply for purposes of this section, and
(B) the extent to which -
(i) transfers of property in reorganization, and
(ii) changes in interests in, or distributions from, a
partnership, trust, or estate,
shall be treated as sales of property at fair market value.
(3) Nonrecognition provision defined
For purposes of this subsection, the term "nonrecognition
provision" means any provision of this title for not recognizing
gain or loss.
[(f) Repealed. Pub. L. 104-188, title I, Sec. 1702(g)(2), Aug. 20,
1996, 110 Stat. 1873]
(g) Special rule for sales of interest in partnerships, trusts, and
estates
Under regulations prescribed by the Secretary, the amount of any
money, and the fair market value of any property, received by a
nonresident alien individual or foreign corporation in exchange for
all or part of its interest in a partnership, trust, or estate
shall, to the extent attributable to United States real property
interests, be considered as an amount received from the sale or
exchange in the United States of such property.
(h) Special rules for REITS
For purposes of this section -
(1) Look-through of distributions
Any distribution by a REIT to a nonresident alien individual or
a foreign corporation shall, to the extent attributable to gain
from sales or exchanges by the REIT of United States real
property interests, be treated as gain recognized by such
nonresident alien individual or foreign corporation from the sale
or exchange of a United States real property interest.
(2) Sale of stock in domestically-controlled REIT not taxed
The term "United States real property interest" does not
include any interest in a domestically-controlled REIT.
(3) Distributions by domestically-controlled REITS
In the case of a domestically-controlled REIT, rules similar to
the rules of subsection (d) shall apply to the foreign ownership
percentage of any gain.
(4) Definitions
(A) REIT
The term "REIT" means a real estate investment trust.
(B) Domestically-controlled REIT
The term "domestically-controlled REIT" means a REIT in which
at all times during the testing period less than 50 percent in
value of the stock was held directly or indirectly by foreign
persons.
(C) Foreign ownership percentage
The term "foreign ownership percentage" means that percentage
of the stock of the REIT which was held (directly or
indirectly) by foreign persons at the time during the testing
period during which the direct and indirect ownership of stock
by foreign persons was greatest.
(D) Testing period
The term "testing period" means whichever of the following
periods is the shortest:
(i) the period beginning on June 19, 1980, and ending on
the date of the disposition or of the distribution, as the
case may be,
(ii) the 5-year period ending on the date of the
disposition or of the distribution, as the case may be, or
(iii) the period during which the REIT was in existence.
(i) Election by foreign corporation to be treated as domestic
corporation
(1) In general
If -
(A) a foreign corporation holds a United States real property
interest, and
(B) under any treaty obligation of the United States the
foreign corporation is entitled to nondiscriminatory treatment
with respect to that interest,
then such foreign corporation may make an election to be treated
as a domestic corporation for purposes of this section, section
1445, and section 6039C.
(2) Revocation only with consent
Any election under paragraph (1), once made, may be revoked
only with the consent of the Secretary.
(3) Making of election
An election under paragraph (1) may be made only -
(A) if all of the owners of all classes of interests (other
than interests solely as a creditor) in the foreign corporation
at the time of the election consent to the making of the
election and agree that gain, if any, from the disposition of
such interest after June 18, 1980, which would be taken into
account under subsection (a) shall be taxable notwithstanding
any provision to the contrary in a treaty to which the United
States is a party, and
(B) subject to such other conditions as the Secretary may
prescribe by regulations with respect to the corporation or its
shareholders.
In the case of a class of interest (other than an interest solely
as a creditor) which is regularly traded on an established
securities market, the consent described in subparagraph (A) need
only be made by any person if such person held more than 5
percent of such class of interest at some time during the shorter
of the periods described in subsection (c)(1)(A)(ii). The
constructive ownership rules of subsection (c)(6)(C) shall apply
in determining whether a person held more than 5 percent of a
class of interest.
(4) Exclusive method of claiming nondiscrimination
The election provided by paragraph (1) shall be the exclusive
remedy for any person claiming discriminatory treatment with
respect to this section, section 1145, and section 6039C.
(j) Certain contributions to capital
Except to the extent otherwise provided in regulations, gain
shall be recognized by a nonresident alien individual or foreign
corporation on the transfer of a United States real property
interest to a foreign corporation if the transfer is made as paid
in surplus or as a contribution to capital, in the amount of the
excess of -
(1) the fair market value of such property transferred, over
(2) the sum of -
(A) the adjusted basis of such property in the hands of the
transferor, plus
(B) the amount of gain, if any, recognized to the transferor
under any other provision at the time of the transfer.
-SOURCE-
(Added Pub. L. 96-499, title XI, Sec. 1122(a), Dec. 5, 1980, 94
Stat. 2682; amended Pub. L. 97-34, title VIII, Sec. 831(a)(1),
(b)-(d), (f), (g), Aug. 13, 1981, 95 Stat. 352-354; Pub. L. 97-248,
title II, Sec. 201(d)(6), formerly Sec. 201(c)(6), Sept. 3, 1982,
96 Stat. 419, renumbered Sec. 201(d)(6), Pub. L. 97-448, title III,
Sec. 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 99-514,
title VI, Sec. 631(e)(12), title VII, Sec. 701(e)(4)(G), title
XVIII, Sec. 1810(f)(1), Oct. 22, 1986, 100 Stat. 2275, 2343, 2826;
Pub. L. 100-647, title I, Sec. 1006(e)(19), Nov. 10, 1988, 102
Stat. 3403; Pub. L. 101-508, title XI, Sec. 11801(a)(30), Nov. 5,
1990, 104 Stat. 1388-521; Pub. L. 103-66, title XIII, Sec.
13203(c)(2), Aug. 10, 1993, 107 Stat. 462; Pub. L. 104-188, title
I, Sec. 1702(g)(2), Aug. 20, 1996, 110 Stat. 1873.)
-MISC1-
AMENDMENTS
1996 - Subsec. (f). Pub. L. 104-188 struck out subsec. (f) which
read as follows:
"(f) Distributions by Domestic Corporations to Foreign
Shareholders. - If a domestic corporation distributes a United
States real property interest to a nonresident alien individual or
a foreign corporation in a distribution to which section 301
applies, notwithstanding any other provision of this chapter, the
basis of such United States real property interest in the hands of
such nonresident alien individual or foreign corporation shall not
exceed -
"(1) the adjusted basis of such property before the
distribution, increased by
"(2) the sum of -
"(A) any gain recognized by the distributing corporation on
the distribution, and
"(B) any tax paid under this chapter by the distributee on
such distribution."
1993 - Subsec. (a)(2). Pub. L. 103-66 substituted "Minimum" for
"21-percent minimum" in heading and "the taxable excess for
purposes of section 55(b)(1)(A) shall not be less than" for "the
amount determined under section 55(b)(1)(A) shall not be less than
21 percent of" in subpar. (A).
1990 - Subsec. (k). Pub. L. 101-508 struck out subsec. (k) which
read as follows: "If -
"(1) a foreign corporation adopts, or has adopted, a plan of
liquidation described in section 334(b)(2)(A), and
"(2) the 12-month period described in section 334(b)(2)(B) for
the acquisition by purchase of the stock of the foreign
corporation, began after December 31, 1979, and before November
26, 1980,
then such foreign corporation may make an election to be treated,
for the period following June 18, 1980, as a domestic corporation
pursuant to section 897(i)(1). Notwithstanding an election under
the preceding sentence, any selling shareholder of such corporation
shall be considered to have sold the stock of a foreign
corporation."
1988 - Subsec. (l). Pub. L. 100-647 struck out subsec. (l) which
provided special rule for certain United States shareholders of
liquidating foreign corporations.
1986 - Subsec. (a)(2). Pub. L. 99-514, Sec. 701(e)(4)(G),
substituted "21-percent" for "20-percent" in heading and amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "In the case of any nonresident alien individual, the
amount determined under section 55(a)(1) for the taxable year shall
not be less than 20 percent of the lesser of -
"(i) the individual's alternative minimum taxable income (as
defined in section 55(b)) for the taxable year, or
"(ii) the individual's net United States real property gain for
the taxable year."
Subsec. (d). Pub. L. 99-514, Sec. 631(e)(12), in heading, struck
out ", etc.," after "distributions", and in text, struck out
heading and designation for par. (1), redesignated subpar. (A) as
par. (1), redesignated subpar. (B) as par. (2) and substituted
"paragraph (1)" for "subparagraph (A)" in introductory provisions,
redesignated cl. (i) and its subcls. (I) and (II) as subpar. (A)
and cls. (i) and (ii), respectively, redesignated cl. (ii) as
subpar. (B), and struck out former par. (2) which provided that
section 337 not apply to any sale or exchange of a United States
real property interest by a foreign corporation.
Subsec. (i)(1), (4). Pub. L. 99-514, Sec. 1810(f)(1), inserted
reference to section 1445.
1982 - Subsec. (a)(2)(A). Pub. L. 97-248 substituted "section
55(a)(1) for the taxable year shall not be less than 20 percent of
the lesser of - " for "section 55(a)(1)(A) for the taxable year
shall not be less than 20 percent of whichever of the following is
the least:" in introductory provisions, in cl. (i) struck out "(1)"
after "section 55(b)" and inserted "or" at the end, in cl. (ii)
substituted a period for a comma and struck out "or" at the end,
and struck out former cl. (iii), which had provided for the amount
of $60,000 as a third alternative.
1981 - Subsec. (c)(1)(A)(i). Pub. L. 97-34, Sec. 831(a)(1),
defined "United States real property interest" to also mean an
interest in real property located in the Virgin Islands.
Subsec. (c)(4)(B). Pub. L. 97-34, Sec. 831(b), substituted
"Assets" for "Interests" in heading and in first sentence "Under
regulations prescribed by the Secretary, assets held by a
partnership, trust or estate shall be treated as held" for "United
States real property interests held by a partnership, trust, or
estate shall be treated as owned" before "proportionately by its
partners or beneficiaries", and inserted provisions respecting
treatment of an asset as used or held for use in a trade or
business by a partner or beneficiary when used or held by the
partnership, trust, or estate in a trade or business and
attributing chain treatment of such trade or business to
partnership, trust, or estate which are above the first such
entity.
Subsec. (d)(1)(B). Pub. L. 97-34, Sec. 831(c), substituted
"Exceptions" for "Exception where there is a carryover basis" in
heading, inserted introductory text "Gain shall not be recognized
under subparagraph (A)", inserted cls. (i)(I) and (ii), and
substituted cl. (i)(II) the basis of the distributed property in
the hands of the distributee is no greater than the adjusted basis
of such property before the distribution, increased by the amount
of gain (if any) recognized by the distributing corporation" for
subpar. (B) provision "Subparagraph (A) shall not apply if the
basis of the distributed property in the hands of the distributee
is the same as the adjusted basis of such property before the
distribution increased by the amount of any gain recognized by the
distributing corporation."
Subsec. (i). Pub. L. 97-34, Sec. 831(d), in par. (1)(A)
substituted "holds a United States real property interest" for "has
a permanent establishment in the United States", in par. (1)(B)
substituted "treaty obligation of the United States the foreign
corporation is entitled to nondiscriminatory treatment with respect
to that interest" for "treaty, such permanent establishment may not
be treated less favorably than domestic corporations carrying on
the same activities", in par. (3) inserted subpar. (A), designated
existing provisions as subpar. (B), in subpar. (B) substituted
"such other conditions as the Secretary may prescribe by
regulations with respect to the corporation or its shareholders"
for "such conditions as may be prescribed by the Secretary", and
prescribed percentage interest required for making the requisite
election and application of constructive ownership rules in
determining existence of the required percentage of a class of
interest.
Subsecs. (j) to (l). Pub. L. 97-34, Sec. 831(f), (g), added
subsecs. (j) to (l).
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see section 13203(d) of Pub. L. 103-66, set
out as a note under section 55 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(e)(12) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 701(e)(4)(G) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
Amendment by section 1810(f)(1) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 201(e)(1) of Pub. L. 97-248, set
out as a note under section 5 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 831(i) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section and sections 862 and
6039C of this title and provisions set out as a note below] shall
apply to dispositions after June 18, 1980, in taxable years ending
after such date."
EFFECTIVE DATE
Section 1125(a), (b) of subtitle C (Secs. 1121-1125) of title XI
of Pub. L. 96-499 provided that:
"(a) In general. - Except as provided in subsection (b), the
amendments made by this subtitle [enacting this section and
provisions set out as notes under this section, and amending
sections 861, 871, 882 of this title] shall apply to dispositions
after June 18, 1980.
"(b) Reporting. - The amendments made by section 1123 [enacting
section 6039C of this title and amending section 6652 of this
title] shall apply to 1980 and subsequent calendar years. In
applying such amendments to 1980, such calendar year shall be
treated as beginning on June 19, 1980, and ending on December 31,
1980."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(4)(G) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
SPECIAL RULE FOR APPLYING SECTION 897
Section 1228 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(m), Nov. 10, 1988, 102 Stat. 3513, provided
that:
"(a) In General. - For purposes of section 897 of the Internal
Revenue Code of 1986, gain shall not be recognized on the transfer,
sale, exchange, or other disposition, of shares of stock of a
United States real property holding company, if -
"(1) such United States real property holding company is a
Delaware corporation incorporated on January 17, 1984,
"(2) the transfer, sale, exchange, or other disposition is to
any member of a qualified ownership group,
"(3) the recipient of the share of stock elects, for purposes
of such section 897, a carryover basis in the transferred shares,
"(4) the transfer, sale, exchange, or other disposition is part
of a single integrated plan, whereby the stock of the corporation
described in paragraph (1) becomes owned directly by the 2
corporations specifically referred to in subsection (b) or by
such 2 corporations and by 1 or both of their jointly owned
direct subsidiaries,
"(5) within 20 days after each transfer, sale, exchange, or
other disposition, the person making such transfer, sale,
exchange, or other disposition notifies the Internal Revenue
Service of the transaction, the date of the transaction, the
basis of the stock involved, the holding period for such stock,
and such other information as the Internal Revenue Service may
require, and
"(6) the integrated plan is completed before the date 4 years
after the date of the enactment of the Technical and
Miscellaneous Revenue Act of 1988 [Nov. 10, 1988].
In the case of any underpayment attributable to a failure to meet
any requirement of this subsection, the period during which such
underpayment may be assessed shall in no event expire before the
date 5 years after the date of the enactment of the Technical and
Miscellaneous Revenue Act of 1988.
"(b) Member of a Qualified Ownership Group. - For purposes of
this section, the term 'member of a qualified ownership group'
means a corporation incorporated on June 16, 1890, under the laws
of the Netherlands or a corporation incorporated on October 18,
1897, under the laws of the United Kingdom or any corporation owned
directly or indirectly by either or both such corporations.
"(c) [Repealed. Pub. L. 100-647, title I, Sec. 1012(m)(2), Nov.
10, 1988, 102 Stat. 3513.]
"(d) Effective Date. - The provisions of this section shall take
effect on the date of the enactment of this section [Oct. 22,
1986]."
GAIN FROM DISPOSITION OF INVESTMENT IN UNITED STATES REAL PROPERTY
BY NONRESIDENT ALIEN INDIVIDUALS AND FOREIGN CORPORATIONS
Section 1125(c) of Pub. L. 96-499, as amended by Pub. L. 97-34,
title VIII, Sec. 831(h), Aug. 13, 1981, 95 Stat. 355; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), after
December 31, 1984, nothing in section 894(a) or 7852(d) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] or in any
other provision of law shall be treated as requiring, by reason of
any treaty obligation of the United States, an exemption from (or
reduction of) any tax imposed by section 871 or 882 of such Code on
a gain described in section 897 of such Code.
"(2) Special rule for treaties renegotiated before 1985. - If -
"(A) any treaty (hereinafter in this paragraph referred to as
the 'old treaty') is renegotiated to resolve conflicts between
such treaty and the provisions of section 897 of the Internal
Revenue Code of 1986, and
"(B) the new treaty is signed on or after January 1, 1981, and
before January 1, 1985,
then paragraph (1) shall be applied with respect to obligations
under the old treaty by substituting for 'December 31, 1984' the
date (not later than 2 years after the new treaty was signed)
specified in the new treaty (or accompanying exchange of notes)."
ADJUSTMENT IN BASIS FOR CERTAIN TRANSACTIONS BETWEEN RELATED
PERSONS
Section 1125(d) of Pub. L. 96-499, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - In the case of any disposition after December
31, 1979, of a United States real property interest (as defined in
section 897(c) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]) to a related person (within the meaning of section
453(f)(1) of such Code), the basis of the interest in the hands of
the person acquiring it shall be reduced by the amount of any
nontaxed gain.
"(2) Nontaxed gain. - For purposes of paragraph (1), the term
'nontaxed gain' means any gain which is not subject to tax under
section 871(b)(1) or 882(a)(1) of such Code -
"(A) because the disposition occurred before June 19, 1980, or
"(B) because of any treaty obligation of the United States."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 861, 862, 871, 882, 884,
1445, 6039C of this title.
-End-
-CITE-
26 USC Sec. 898 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 898. Taxable year of certain foreign corporations
-STATUTE-
(a) General rule
For purposes of this title, the taxable year of any specified
foreign corporation shall be the required year determined under
subsection (c).
(b) Specified foreign corporation
For purposes of this section -
(1) In general
The term "specified foreign corporation" means any foreign
corporation -
(A) which is -
(i) treated as a controlled foreign corporation for any
purpose under subpart F of part III of this subchapter, or
(ii) a foreign personal holding company (as defined in
section 552), and
(B) with respect to which the ownership requirements of
paragraph (2) are met.
(2) Ownership requirements
(A) In general
The ownership requirements of this paragraph are met with
respect to any foreign corporation if a United States
shareholder owns, on each testing day, more than 50 percent of
-
(i) the total voting power of all classes of stock of such
corporation entitled to vote, or
(ii) the total value of all classes of stock of such
corporation.
(B) Ownership
For purposes of subparagraph (A), the rules of subsections
(a) and (b) of section 958 and sections 551(f) and 554,
whichever are applicable, shall apply in determining ownership.
(3) United States shareholder
(A) In general
The term "United States shareholder" has the meaning given to
such term by section 951(b), except that, in the case of a
foreign corporation having related person insurance income (as
defined in section 953(c)(2)), the Secretary may treat any
person as a United States shareholder for purposes of this
section if such person is treated as a United States
shareholder under section 953(c)(1).
(B) Foreign personal holding companies
In the case of any foreign personal holding company (as
defined in section 552) which is not a specified foreign
corporation by reason of paragraph (1)(A)(i), the term "United
States shareholder" means any person who is treated as a United
States shareholder under section 551.
(c) Determination of required year
(1) Controlled foreign corporations
(A) In general
In the case of a specified foreign corporation described in
subsection (b)(1)(A)(i), the required year is -
(i) the majority U.S. shareholder year, or
(ii) if there is no majority U.S. shareholder year, the
taxable year prescribed under regulations.
(B) 1-month deferral allowed
A specified foreign corporation may elect, in lieu of the
taxable year under subparagraph (A)(i), a taxable year
beginning 1 month earlier than the majority U.S. shareholder
year.
(C) Majority U.S. shareholder year
(i) In general
For purposes of this subsection, the term "majority U.S.
shareholder year" means the taxable year (if any) which, on
each testing day, constituted the taxable year of -
(I) each United States shareholder described in
subsection (b)(2)(A), and
(II) each United States shareholder not described in
subclause (I) whose stock was treated as owned under
subsection (b)(2)(B) by any shareholder described in such
subclause.
(ii) Testing day
The testing days shall be -
(I) the first day of the corporation's taxable year
(determined without regard to this section), or
(II) the days during such representative period as the
Secretary may prescribe.
(2) Foreign personal holding companies
In the case of a foreign personal holding company described in
subsection (b)(3)(B), the required year shall be determined under
paragraph (1), except that subparagraph (B) of paragraph (1)
shall not apply.
-SOURCE-
(Added Pub. L. 101-239, title VII, Sec. 7401(a), Dec. 19, 1989, 103
Stat. 2355.)
-MISC1-
EFFECTIVE DATE
Section 7401(d) of Pub. L. 101-239 provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending section 563 of this title] shall apply to
taxable years of foreign corporations beginning after July 10,
1989.
"(2) Special rules. - If any foreign corporation is required by
the amendments made by this section to change its taxable year for
its first taxable year beginning after July 10, 1989 -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the
consent of the Secretary of the Treasury or his delegate, and
"(C) if, by reason of such change, any United States person is
required to include in gross income for 1 taxable year amounts
attributable to 2 taxable years of such foreign corporation, the
amount which would otherwise be required to be included in gross
income for such 1 taxable year by reason of the short taxable
year of the foreign corporation resulting from such change shall
be included in gross income ratably over the 4-taxable-year
period beginning with such 1 taxable year."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 6038 of this title.
-End-
-CITE-
26 USC PART III - INCOME FROM SOURCES WITHOUT THE UNITED
STATES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
-HEAD-
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
-MISC1-
Subpart
A. Foreign tax credit.
B. Earned income of citizens or residents of United
States.
[C. Repealed.]
D. Possessions of the United States.
E. Qualifying foreign trade income.
F. Controlled foreign corporations.
[G. Repealed.] (!1)
H. Income of certain nonresident United States citizens
subject to foreign community property laws.(!1)
I. Admissibility of documentation maintained in foreign
countries.
J. Foreign currency transactions.
AMENDMENTS
2000 - Pub. L. 106-519, Sec. 4(8), Nov. 15, 2000, 114 Stat. 2433,
struck out item for subpart C "Taxation of foreign sales
corporations".
Pub. L. 106-519, Sec. 4(7), Nov. 15, 2000, 114 Stat. 2433, added
item for subpart E and directed that former item for subpart E be
struck out, which could not be executed because the item for
subpart E had previously been struck out by Pub. L. 94-455, Sec.
1053(d)(5). See 1976 Amendment note below.
1986 - Pub. L. 99-514, title XII, Sec. 1261(d), Oct. 22, 1986,
100 Stat. 2591, added item for subpart J.
1984 - Pub. L. 98-369, div. A, title VIII, Sec. 802(c)(4), July
18, 1984, 98 Stat. 999, added item for subpart C.
1982 - Pub. L. 97-248, title III, Sec. 337(b), Sept. 3, 1982, 96
Stat. 630, added item for subpart I.
1978 - Pub. L. 95-615, Sec. 202(g)(4), formerly Sec. 202(f)(4),
Nov. 8, 1978, 92 Stat. 3100, renumbered Pub. L. 96-222, title I,
Sec. 108(a)(1)(A), Apr. 1, 1980, 94 Stat. 223, inserted in item for
subpart B "or residents" after "citizens."
1976 - Pub. L. 94-455, title X, Sec. 1012(b)(3)(B), Oct. 4, 1976,
90 Stat. 1614, struck out item for subpart G "Export Trade
Corporation" from analysis without a corresponding repeal of text
in such subpart. The amendment probably should have struck out item
for subpart H.
Pub. L. 94-455, title X, Secs. 1052(c)(7), 1053(d)(5), Oct. 4,
1976, 90 Stat. 1648, 1649, struck out item for subpart C, relating
to Western Hemisphere trade corporations, effective for taxable
years beginning after Dec. 31, 1979, and item for subpart E,
relating to China Trade Act corporations, effective for taxable
years beginning after Dec. 31, 1977.
1966 - Pub. L. 89-809, title I, Sec. 105(e)(2), Nov. 13, 1966, 80
Stat. 1567, added item for subpart H.
1962 - Pub. L. 87-834, Sec. 12(b)(3), Oct. 16, 1962, 76 Stat.
1031, added items for subparts F and G.
-FOOTNOTE-
(!1) See 1976 Amendment note below.
-End-
-CITE-
26 USC Subpart A - Foreign Tax Credit 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
SUBPART A - FOREIGN TAX CREDIT
-MISC1-
Sec.
901. Taxes of foreign countries and of possessions of
United States.
902. Deemed paid credit where domestic corporation owns 10
percent or more of voting stock of foreign
corporation.
903. Credit for taxes in lieu of income, etc., taxes.
904. Limitation on credit.
905. Applicable rules.
906. Nonresident alien individuals and foreign
corporations.
907. Special rules in case of foreign oil and gas income.
908. Reduction of credit for participation in or
cooperation with an international boycott.
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Sec. 1202(d), Oct. 22, 1986,
100 Stat. 2531, substituted "Deemed paid credit where domestic
corporation owns 10 percent or more of voting stock of foreign
corporation" for "Credit for corporate stockholder in foreign
corporation" in item 902.
1976 - Pub. L. 94-455, title X, Sec. 1061(b), Oct. 4, 1976, 90
Stat. 1650, added item 908.
1975 - Pub. L. 94-12, title VI, Sec. 601(c), Mar. 29, 1975, 89
Stat. 57, added item 907.
1966 - Pub. L. 89-809, title I, Sec. 106(a)(2), Nov. 13, 1966, 80
Stat. 1569, added item 906.
-SECREF-
SUBPART REFERRED TO IN OTHER SECTIONS
This subpart is referred to in sections 78, 338, 667, 814, 861,
960, 1351, 1373 of this title.
-End-
-CITE-
26 USC Sec. 901 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
Sec. 901. Taxes of foreign countries and of possessions of United
States
-STATUTE-
(a) Allowance of credit
If the taxpayer chooses to have the benefits of this subpart, the
tax imposed by this chapter shall, subject to the limitation of
section 904, be credited with the amounts provided in the
applicable paragraph of subsection (b) plus, in the case of a
corporation, the taxes deemed to have been paid under sections 902
and 960. Such choice for any taxable year may be made or changed at
any time before the expiration of the period prescribed for making
a claim for credit or refund of the tax imposed by this chapter for
such taxable year. The credit shall not be allowed against any tax
treated as a tax not imposed by this chapter under section 26(b).
(b) Amount allowed
Subject to the limitation of section 904, the following amounts
shall be allowed as the credit under subsection (a):
(1) Citizens and domestic corporations
In the case of a citizen of the United States and of a domestic
corporation, the amount of any income, war profits, and excess
profits taxes paid or accrued during the taxable year to any
foreign country or to any possession of the United States; and
(2) Resident of the United States or Puerto Rico
In the case of a resident of the United States and in the case
of an individual who is a bona fide resident of Puerto Rico
during the entire taxable year, the amount of any such taxes paid
or accrued during the taxable year to any possession of the
United States; and
(3) Alien resident of the United States or Puerto Rico
In the case of an alien resident of the United States and in
the case of an alien individual who is a bona fide resident of
Puerto Rico during the entire taxable year, the amount of any
such taxes paid or accrued during the taxable year to any foreign
country; and
(4) Nonresident alien individuals and foreign corporations
In the case of any nonresident alien individual not described
in section 876 and in the case of any foreign corporation, the
amount determined pursuant to section 906; and
(5) Partnerships and estates
In the case of any individual described in paragraph (1), (2),
(3), or (4), who is a member of a partnership or a beneficiary of
an estate or trust, the amount of his proportionate share of the
taxes (described in such paragraph) of the partnership or the
estate or trust paid or accrued during the taxable year to a
foreign country or to any possession of the United States, as the
case may be. Under rules or regulations prescribed by the
Secretary, in the case of any foreign trust of which the settlor
or another person would be treated as owner of any portion of the
trust under subpart E but for section 672(f), the allocable
amount of any income, war profits, and excess profits taxes
imposed by any foreign country or possession of the United States
on the settlor or such other person in respect of trust income.
(c) Similar credit required for certain alien residents
Whenever the President finds that -
(1) a foreign country, in imposing income, war profits, and
excess profits taxes, does not allow to citizens of the United
States residing in such foreign country a credit for any such
taxes paid or accrued to the United States or any foreign
country, as the case may be, similar to the credit allowed under
subsection (b)(3),
(2) such foreign country, when requested by the United States
to do so, has not acted to provide such a similar credit to
citizens of the United States residing in such foreign country,
and
(3) it is in the public interest to allow the credit under
subsection (b)(3) to citizens or subjects of such foreign country
only if it allows such a similar credit to citizens of the United
States residing in such foreign country,
the President shall proclaim that, for taxable years beginning
while the proclamation remains in effect, the credit under
subsection (b)(3) shall be allowed to citizens or subjects of such
foreign country only if such foreign country, in imposing income,
war profits, and excess profits taxes, allows to citizens of the
United States residing in such foreign country such a similar
credit.
(d) Treatment of dividends from a DISC or former DISC
For purposes of this subpart, dividends from a DISC or former
DISC (as defined in section 992(a)) shall be treated as dividends
from a foreign corporation to the extent such dividends are treated
under part I as income from sources without the United States.
(e) Foreign taxes on mineral income
(1) Reduction in amount allowed
Notwithstanding subsection (b), the amount of any income, war
profits, and excess profits taxes paid or accrued during the
taxable year to any foreign country or possession of the United
States with respect to foreign mineral income from sources within
such country or possession which would (but for this paragraph)
be allowed under such subsection shall be reduced by the amount
(if any) by which -
(A) the amount of such taxes (or, if smaller, the amount of
the tax which would be computed under this chapter with respect
to such income determined without the deduction allowed under
section 613), exceeds
(B) the amount of the tax computed under this chapter with
respect to such income.
(2) Foreign mineral income defined
For purposes of paragraph (1), the term "foreign mineral
income" means income derived from the extraction of minerals from
mines, wells, or other natural deposits, the processing of such
minerals into their primary products, and the transportation,
distribution, or sale of such minerals or primary products. Such
term includes, but is not limited to -
(A) dividends received from a foreign corporation in respect
of which taxes are deemed paid by the taxpayer under section
902, to the extent such dividends are attributable to foreign
mineral income, and
(B) that portion of the taxpayer's distributive share of the
income of partnerships attributable to foreign mineral income.
(f) Certain payments for oil or gas not considered as taxes
Notwithstanding subsection (b) and sections 902 and 960, the
amount of any income, or profits, and excess profits taxes paid or
accrued during the taxable year to any foreign country in
connection with the purchase and sale of oil or gas extracted in
such country is not to be considered as tax for purposes of section
275(a) and this section if -
(1) the taxpayer has no economic interest in the oil or gas to
which section 611(a) applies, and
(2) either such purchase or sale is at a price which differs
from the fair market value for such oil or gas at the time of
such purchase or sale.
(g) Certain taxes paid with respect to distributions from
possessions corporations
(1) In general
For purposes of this chapter, any tax of a foreign country or
possession of the United States which is paid or accrued with
respect to any distribution from a corporation -
(A) to the extent that such distribution is attributable to
periods during which such corporation is a possessions
corporation, and
(B)(i) if a dividends received deduction is allowable with
respect to such distribution under part VIII of subchapter B,
or
(ii) to the extent that such distribution is received in
connection with a liquidation or other transaction with respect
to which gain or loss is not recognized,
shall not be treated as income, war profits, or excess profits
taxes paid or accrued to a foreign country or possession of the
United States, and no deduction shall be allowed under this title
with respect to any amount so paid or accrued.
(2) Possessions corporation
For purposes of paragraph (1), a corporation shall be treated
as a possessions corporation for any period during which an
election under section 936 applied to such corporation, during
which section 931 (as in effect on the day before the date of the
enactment of the Tax Reform Act of 1976) applied to such
corporation, or during which section 957(c) (as in effect on the
day before the date of the enactment of the Tax Reform Act of
1986) applied to such corporation.
(h) Taxes paid with respect to foreign trade income
No credit shall be allowed under this section for any income, war
profits, and excess profits taxes paid or accrued with respect to
the foreign trade income (within the meaning of section 923(b))
(!1) of a FSC, other than section 923(a)(2) (!1) non-exempt income
(within the meaning of section 927(d)(6)).(!1)
(i) Taxes used to provide subsidies
Any income, war profits, or excess profits tax shall not be
treated as a tax for purposes of this title to the extent -
(1) the amount of such tax is used (directly or indirectly) by
the country imposing such tax to provide a subsidy by any means
to the taxpayer, a related person (within the meaning of section
482), or any party to the transaction or to a related
transaction, and
(2) such subsidy is determined (directly or indirectly) by
reference to the amount of such tax, or the base used to compute
the amount of such tax.
(j) Denial of foreign tax credit, etc., with respect to certain
foreign countries
(1) In general
Notwithstanding any other provision of this part -
(A) no credit shall be allowed under subsection (a) for any
income, war profits, or excess profits taxes paid or accrued
(or deemed paid under section 902 or 960) to any country if
such taxes are with respect to income attributable to a period
during which this subsection applies to such country, and
(B) subsections (a), (b), and (c) of section 904 and sections
902 and 960 shall be applied separately with respect to income
attributable to such a period from sources within such country.
(2) Countries to which subsection applies
(A) In general
This subsection shall apply to any foreign country -
(i) the government of which the United States does not
recognize, unless such government is otherwise eligible to
purchase defense articles or services under the Arms Export
Control Act,
(ii) with respect to which the United States has severed
diplomatic relations,
(iii) with respect to which the United States has not
severed diplomatic relations but does not conduct such
relations, or
(iv) which the Secretary of State has, pursuant to section
6(j) of the Export Administration Act of 1979, as amended,
designated as a foreign country which repeatedly provides
support for acts of international terrorisms.
(B) Period for which subsection applies
This subsection shall apply to any foreign country described
in subparagraph (A) during the period -
(i) beginning on the later of -
(I) January 1, 1987, or
(II) 6 months after such country becomes a country
described in subparagraph (A), and
(ii) ending on the date the Secretary of State certifies to
the Secretary of the Treasury that such country is no longer
described in subparagraph (A).
(3) Taxes allowed as a deduction, etc.
Sections 275 and 78 shall not apply to any tax which is not
allowable as a credit under subsection (a) by reason of this
subsection.
(4) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection, including regulations which treat income paid through
1 or more entities as derived from a foreign country to which
this subsection applies if such income was, without regard to
such entities, derived from such country.
(5) Waiver of denial
(A) In general
Paragraph (1) shall not apply with respect to taxes paid or
accrued to a country if the President -
(i) determines that a waiver of the application of such
paragraph is in the national interest of the United States
and will expand trade and investment opportunities for United
States companies in such country; and
(ii) reports such waiver under subparagraph (B).
(B) Report
Not less than 30 days before the date on which a waiver is
granted under this paragraph, the President shall report to
Congress -
(i) the intention to grant such waiver; and
(ii) the reason for the determination under subparagraph
(A)(i).
(k) Minimum holding period for certain taxes
(1) Withholding taxes
(A) In general
In no event shall a credit be allowed under subsection (a)
for any withholding tax on a dividend with respect to stock in
a corporation if -
(i) such stock is held by the recipient of the dividend for
15 days or less during the 30-day period beginning on the
date which is 15 days before the date on which such share
becomes ex-dividend with respect to such dividend, or
(ii) to the extent that the recipient of the dividend is
under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions
in substantially similar or related property.
(B) Withholding tax
For purposes of this paragraph, the term "withholding tax"
includes any tax determined on a gross basis; but does not
include any tax which is in the nature of a prepayment of a tax
imposed on a net basis.
(2) Deemed paid taxes
In the case of income, war profits, or excess profits taxes
deemed paid under section 853, 902, or 960 through a chain of
ownership of stock in 1 or more corporations, no credit shall be
allowed under subsection (a) for such taxes if -
(A) any stock of any corporation in such chain (the ownership
of which is required to obtain credit under subsection (a) for
such taxes) is held for less than the period described in
paragraph (1)(A)(i), or
(B) the corporation holding the stock is under an obligation
referred to in paragraph (1)(A)(ii).
(3) 45-day rule in the case of certain preference dividends
In the case of stock having preference in dividends and
dividends with respect to such stock which are attributable to a
period or periods aggregating in excess of 366 days, paragraph
(1)(A)(i) shall be applied -
(A) by substituting "45 days" for "15 days" each place it
appears, and
(B) by substituting "90-day period" for "30-day period".
(4) Exception for certain taxes paid by securities dealers
(A) In general
Paragraphs (1) and (2) shall not apply to any qualified tax
with respect to any security held in the active conduct in a
foreign country of a business as a securities dealer of any
person -
(i) who is registered as a securities broker or dealer
under section 15(a) of the Securities Exchange Act of 1934,
(ii) who is registered as a Government securities broker or
dealer under section 15C(a) of such Act, or
(iii) who is licensed or authorized in such foreign country
to conduct securities activities in such country and is
subject to bona fide regulation by a securities regulating
authority of such country.
(B) Qualified tax
For purposes of subparagraph (A), the term "qualified tax"
means a tax paid to a foreign country (other than the foreign
country referred to in subparagraph (A)) if -
(i) the dividend to which such tax is attributable is
subject to taxation on a net basis by the country referred to
in subparagraph (A), and
(ii) such country allows a credit against its net basis tax
for the full amount of the tax paid to such other foreign
country.
(C) Regulations
The Secretary may prescribe such regulations as may be
appropriate to carry out this paragraph, including regulations
to prevent the abuse of the exception provided by this
paragraph and to treat other taxes as qualified taxes.
(5) Certain rules to apply
For purposes of this subsection, the rules of paragraphs (3)
and (4) of section 246(c) shall apply.
(6) Treatment of bona fide sales
If a person's holding period is reduced by reason of the
application of the rules of section 246(c)(4) to any contract for
the bona fide sale of stock, the determination of whether such
person's holding period meets the requirements of paragraph (2)
with respect to taxes deemed paid under section 902 or 960 shall
be made as of the date such contract is entered into.
(7) Taxes allowed as deduction, etc.
Sections 275 and 78 shall not apply to any tax which is not
allowable as a credit under subsection (a) by reason of this
subsection.
(l) Cross reference
(1) For deductions of income, war profits, and excess profits
taxes paid to a foreign country or a possession of the United
States, see sections 164 and 275.
(2) For right of each partner to make election under this
section, see section 703(b).
(3) For right of estate or trust to the credit for taxes
imposed by foreign countries and possessions of the United
States under this section, see section 642(a).
(4) For reduction of credit for failure of a United States
person to furnish certain information with respect to a foreign
corporation or partnership controlled by him, see section 6038.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 285; Pub. L. 86-780, Sec. 3(a),
(b), Sept. 14, 1960, 74 Stat. 1013; Pub. L. 87-834, Secs. 9(d)(3),
12(b)(1), Oct. 16, 1962, 76 Stat. 1001, 1031; Pub. L. 88-272, title
II, Sec. 207(b)(7), Feb. 26, 1964, 78 Stat. 42; Pub. L. 89-384,
Sec. 1(c)(2), Apr. 8, 1966, 80 Stat. 102; Pub. L. 89-809, title I,
Sec. 106(a)(4), (5), (b)(1), (2), Nov. 13, 1966, 80 Stat. 1569;
Pub. L. 91-172, title III, Sec. 301(b)(9), title V, Sec. 506(a),
Dec. 30, 1969, 83 Stat. 585, 634; Pub. L. 92-178, title V, Sec.
502(b)(1), Dec. 10, 1971, 85 Stat. 549; Pub. L. 93-406, title II,
Secs. 2001(g)(2)(C), 2002(g)(3), 2005(c)(5), Sept. 2, 1974, 88
Stat. 957, 968, 991; Pub. L. 94-12, title VI, Sec. 601(b), Mar. 29,
1975, 89 Stat. 57; Pub. L. 94-455, title X, Secs. 1031(b)(1),
1051(d), title XIX, Sec. 1901(b)(1)(H)(iii), (37)(A), Oct. 4, 1976,
90 Stat. 1622, 1645, 1791, 1803; Pub. L. 95-600, title VII, Sec.
701(u)(1)(A), (B), Nov. 6, 1978, 92 Stat. 2912; Pub. L. 97-248,
title II, Sec. 201(d)(8)(A), formerly Sec. 201(c)(8)(A), Sec.
265(b)(2)(A)(iv), Sept. 3, 1982, 96 Stat. 420, 547, renumbered Sec.
201(d)(8)(A), Pub. L. 97-448, title III, Sec. 306(a)(1)(A)(i), Jan.
12, 1983, 96 Stat. 2400; Pub. L. 98-369, div. A, title IV, Sec.
474(r)(20), title VI, Sec. 612(e)(1), title VII, Sec. 713(c)(1)(C),
title VIII, Sec. 801(d)(1), July 18, 1984, 98 Stat. 843, 912, 957,
995; Pub. L. 99-509, title VIII, Sec. 8041(a), Oct. 21, 1986, 100
Stat. 1962; Pub. L. 99-514, title I, Sec. 112(b)(3), title XII,
Sec. 1204(a), title XVIII, Sec. 1876(p)(2), Oct. 22, 1986, 100
Stat. 2109, 2532, 2902; Pub. L. 100-203, title X, Sec. 10231(a),
(b), Dec. 22, 1987, 101 Stat. 1330-418, 1330-419; Pub. L. 100-647,
title I, Sec. 1012(j), title II, Sec. 2003(c)(1), Nov. 10, 1988,
102 Stat. 3512, 3598; Pub. L. 103-149, Sec. 4(b)(8)(A), Nov. 23,
1993, 107 Stat. 1505; Pub. L. 104-188, title I, Sec. 1904(b)(2),
Aug. 20, 1996, 110 Stat. 1912; Pub. L. 105-34, title X, Sec.
1053(a), title XI, Sec. 1142(e)(4), Aug. 5, 1997, 111 Stat. 941,
983; Pub. L. 105-206, title VI, Sec. 6010(k)(3), July 22, 1998, 112
Stat. 815; Pub. L. 106-200, title VI, Sec. 601(a), May 18, 2000,
114 Stat. 305.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1976, referred
to in subsec. (g)(2), is the date of enactment of Pub. L. 94-455,
which was approved Oct. 4, 1976.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (g)(2), is the date of enactment of Pub. L. 99-514,
which was approved Oct. 22, 1986.
Sections 923 and 927, referred to in subsec. (h), were repealed
by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
The Arms Export Control Act, referred to in subsec. (j)(2)(A)(i),
is Pub. L. 90-269, Oct. 22, 1968, 82 Stat. 1320, as amended, which
is classified principally to chapter 39 (Sec. 2751 et seq.) of
Title 22, Foreign Relations and Intercourse. For complete
classification of this Act to the Code, see Short Title note set
out under section 2751 of Title 22 and Tables.
Section 6(j) of the Export Administration Act of 1979, referred
to in subsec. (j)(2)(A)(iv), is classified to section 2405(j) of
Title 50, Appendix, War and National Defense.
Sections 15(a) and 15C(a) of the Securities Exchange Act of 1934,
referred to in subsec. (k)(4)(A)(i), (ii), are classified to
sections 78o(a) and 78o-5(a), respectively, of Title 15, Commerce
and Trade.
-MISC1-
AMENDMENTS
2000 - Subsec. (j)(5). Pub. L. 106-200 added par. (5).
1998 - Subsec. (k)(4)(A). Pub. L. 105-206 substituted "business
as a securities dealer" for "securities business" in introductory
provisions.
1997 - Subsec. (k). Pub. L. 105-34, Sec. 1053(a), added subsec.
(k). Former subsec. (k) redesignated (l).
Subsec. (l). Pub. L. 105-34, Sec. 1053(a), redesignated subsec.
(k) as (l).
Subsec. (l)(4). Pub. L. 105-34, Sec. 1142(e)(4), which directed
amendment of subsec. (k)(4) by substituting "foreign corporation or
partnership" for "foreign corporation", was executed to subsec.
(l)(4) to reflect the probable intent of Congress and the
redesignation of subsec. (k) as (l) by Pub. L. 105-34, Sec.
1053(a). See above.
1996 - Subsec. (b)(5). Pub. L. 104-188 inserted at end "Under
rules or regulations prescribed by the Secretary, in the case of
any foreign trust of which the settlor or another person would be
treated as owner of any portion of the trust under subpart E but
for section 672(f), the allocable amount of any income, war
profits, and excess profits taxes imposed by any foreign country or
possession of the United States on the settlor or such other person
in respect of trust income."
1993 - Subsec. (j)(2)(C). Pub. L. 103-149 struck out heading and
text of subpar. (C). Text read as follows:
"(i) In general. - In addition to any period during which this
subsection would otherwise |