-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 e |
