-CITE-
26 USC Subchapter N - Tax Based on Income From Sources
Within or Without the United States 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
-HEAD-
SUBCHAPTER N - TAX BASED ON INCOME FROM SOURCES WITHIN OR WITHOUT
THE UNITED STATES
-MISC1-
Part
I. Source rules and other general rules relating to
foreign income.
II. Nonresident aliens and foreign corporations.
III. Income from sources without the United States.
IV. Domestic international sales corporations.(!1)
V. International boycott determinations.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Sec. 1012(h)(2)(D), Nov. 10,
1988, 102 Stat. 3503, substituted "Source rules and other general
rules relating to foreign income" for "Determination of sources of
income" in item for part I.
1976 - Pub. L. 94-455, title X, Sec. 1064(b), Oct. 4, 1976, 90
Stat. 1653, added item V.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in section 555 of this title.
-FOOTNOTE-
(!1) Editorially supplied. Part IV added by Pub. L. 92-178 without
corresponding amendment of subchapter analysis.
-End-
-CITE-
26 USC PART I - SOURCE RULES AND OTHER GENERAL RULES
RELATING TO FOREIGN INCOME 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-MISC1-
Sec.
861. Income from sources within the United States.
862. Income from sources without the United States.
863. Special rules for determining source.
864. Definitions and special rules.
865. Source rules for personal property sales.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Secs. 1012(e)(3)(B), (h)(2)(C),
1018(u)(37), Nov. 11, 1988, 102 Stat. 3500, 3502, 3592, substituted
"SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN INCOME"
for "DETERMINATION OF SOURCES OF INCOME" as part I heading,
substituted "Special rules for determining source" for "Items not
specified in section 861 or 862" in item 863, and added item 865.
1986 - Pub. L. 99-514, title XII, Sec. 1215(b)(2), Oct. 22, 1986,
100 Stat. 2545, substituted "Definitions and special rules" for
"Definitions" in item 864.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 306, 818, 901, 905 of this
title.
-End-
-CITE-
26 USC Sec. 861 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 861. Income from sources within the United States
-STATUTE-
(a) Gross income from sources within United States
The following items of gross income shall be treated as income
from sources within the United States:
(1) Interest
Interest from the United States or the District of Columbia,
and interest on bonds, notes, or other interest-bearing
obligations of noncorporate residents or domestic corporations
not including -
(A) interest from a resident alien individual or domestic
corporation, if such individual or corporation meets the
80-percent foreign business requirements of subsection (c)(1),
and
(B) interest -
(i) on deposits with a foreign branch of a domestic
corporation or a domestic partnership if such branch is
engaged in the commercial banking business, and
(ii) on amounts satisfying the requirements of subparagraph
(B) of section 871(i)(3) which are paid by a foreign branch
of a domestic corporation or a domestic partnership.
(2) Dividends
The amount received as dividends -
(A) from a domestic corporation other than a corporation
which has an election in effect under section 936, or
(B) from a foreign corporation unless less than 25 percent of
the gross income from all sources of such foreign corporation
for the 3-year period ending with the close of its taxable year
preceding the declaration of such dividends (or for such part
of such period as the corporation has been in existence) was
effectively connected (or treated as effectively connected
other than income described in section 884(d)(2)) with the
conduct of a trade or business within the United States; but
only in an amount which bears the same ratio to such dividends
as the gross income of the corporation for such period which
was effectively connected (or treated as effectively connected
other than income described in section 884(d)(2)) with the
conduct of a trade or business within the United States bears
to its gross income from all sources; but dividends (other than
dividends for which a deduction is allowable under section
245(b)) from a foreign corporation shall, for purposes of
subpart A of part III (relating to foreign tax credit), be
treated as income from sources without the United States to the
extent (and only to the extent) exceeding the amount which is
100/70th of the amount of the deduction allowable under section
245 in respect of such dividends, or
(C) from a foreign corporation to the extent that such amount
is required by section 243(e) (relating to certain dividends
from foreign corporations) to be treated as dividends from a
domestic corporation which is subject to taxation under this
chapter, and to such extent subparagraph (B) shall not apply to
such amount, or
(D) from a DISC or former DISC (as defined in section 992(a))
except to the extent attributable (as determined under
regulations prescribed by the Secretary) to qualified export
receipts described in section 993(a)(1) (other than interest
and gains described in section 995(b)(1)).
In the case of any dividend from a 20-percent owned corporation
(as defined in section 243(c)(2)), subparagraph (B) shall be
applied by substituting "100/80th" for "100/70th".
(3) Personal services
Compensation for labor or personal services performed in the
United States; except that compensation for labor or services
performed in the United States shall not be deemed to be income
from sources within the United States if -
(A) the labor or services are performed by a nonresident
alien individual temporarily present in the United States for a
period or periods not exceeding a total of 90 days during the
taxable year,
(B) such compensation does not exceed $3,000 in the
aggregate, and
(C) the compensation is for labor or services performed as an
employee of or under a contract with -
(i) a nonresident alien, foreign partnership, or foreign
corporation, not engaged in trade or business within the
United States, or
(ii) an individual who is a citizen or resident of the
United States, a domestic partnership, or a domestic
corporation, if such labor or services are performed for an
office or place of business maintained in a foreign country
or in a possession of the United States by such individual,
partnership, or corporation.
In addition, compensation for labor or services performed in the
United States shall not be deemed to be income from sources
within the United States if the labor or services are performed
by a nonresident alien individual in connection with the
individual's temporary presence in the United States as a regular
member of the crew of a foreign vessel engaged in transportation
between the United States and a foreign country or a possession
of the United States.
(4) Rentals and royalties
Rentals or royalties from property located in the United States
or from any interest in such property, including rentals or
royalties for the use of or for the privilege of using in the
United States patents, copyrights, secret processes and formulas,
good will, trade-marks, trade brands, franchises, and other like
property.
(5) Disposition of United States real property interest
Gains, profits, and income from the disposition of a United
States real property interest (as defined in section 897(c)).
(6) Sale or exchange of inventory property
Gains, profits, and income derived from the purchase of
inventory property (within the meaning of section 865(i)(1))
without the United States (other than within a possession of the
United States) and its sale or exchange within the United States.
(7) Amounts received as underwriting income (as defined in
section 832(b)(3)) derived from the issuing (or reinsuring) of
any insurance or annuity contract -
(A) in connection with property in, liability arising out of
an activity in, or in connection with the lives or health of
residents of, the United States, or
(B) in connection with risks not described in subparagraph
(A) as a result of any arrangement whereby another corporation
receives a substantially equal amount of premiums or other
consideration in respect to issuing (or reinsuring) any
insurance or annuity contract in connection with property in,
liability arising out of activity in, or in connection with the
lives or health of residents of, the United States.
(8) Social security benefits
Any social security benefit (as defined in section 86(d)).
(b) Taxable income from sources within United States
From the items of gross income specified in subsection (a) as
being income from sources within the United States there shall be
deducted the expenses, losses, and other deductions properly
apportioned or allocated thereto and a ratable part of any
expenses, losses, or other deductions which cannot definitely be
allocated to some item or class of gross income. The remainder, if
any, shall be included in full as taxable income from sources
within the United States. In the case of an individual who does not
itemize deductions, an amount equal to the standard deduction shall
be considered a deduction which cannot definitely be allocated to
some item or class of gross income.
(c) Foreign business requirements
(1) Foreign business requirements
(A) In general
An individual or corporation meets the 80-percent foreign
business requirements of this paragraph if it is shown to the
satisfaction of the Secretary that at least 80 percent of the
gross income from all sources of such individual or corporation
for the testing period is active foreign business income.
(B) Active foreign business income
For purposes of subparagraph (A), the term "active foreign
business income" means gross income which -
(i) is derived from sources outside the United States (as
determined under this subchapter) or, in the case of a
corporation, is attributable to income so derived by a
subsidiary of such corporation, and
(ii) is attributable to the active conduct of a trade or
business in a foreign country or possession of the United
States by the individual or corporation (or by a subsidiary.)
For purposes of this subparagraph, the term "subsidiary" means
any corporation in which the corporation referred to in this
subparagraph owns (directly or indirectly) stock meeting the
requirements of section 1504(a)(2) (determined by substituting
"50 percent" for "80 percent" each place it appears).
(C) Testing period
For purposes of this subsection, the term "testing period"
means the 3-year period ending with the close of the taxable
year of the individual or corporation preceding the payment (or
such part of such period as may be applicable). If the
individual or corporation has no gross income for such 3-year
period (or part thereof), the testing period shall be the
taxable year in which the payment is made.
(2) Look-thru where related person receives interest
(A) In general
In the case of interest received by a related person from a
resident alien individual or domestic corporation meeting the
80-percent foreign business requirements of paragraph (1),
subsection (a)(1)(A) shall apply only to a percentage of such
interest equal to the percentage which -
(i) the gross income of such individual or corporation for
the testing period from sources outside the United States (as
determined under this subchapter), is of
(ii) the total gross income of such individual or
corporation for the testing period.
(B) Related person
For purposes of this paragraph, the term "related person" has
the meaning given such term by section 954(d)(3), except that -
(i) such section shall be applied by substituting "the
individual or corporation making the payment" for "controlled
foreign corporation" each place it appears, and
(ii) such section shall be applied by substituting "10
percent or more" for "more than 50 percent" each place it
appears.
(d) Special rule for application of subsection (a)(2)(B)
For purposes of subsection (a)(2)(B), if the foreign corporation
has no gross income from any source for the 3-year period (or part
thereof) specified, the requirements of such subsection shall be
applied with respect to the taxable year of such corporation in
which the payment of the dividend is made.
(e) Income from certain railroad rolling stock treated as income
from sources within the United States
(1) General rule
For purposes of subsection (a) and section 862(a), if -
(A) a taxpayer leases railroad rolling stock which is section
1245 property (as defined in section 1245(a)(3)) to a domestic
common carrier by railroad or a corporation which is
controlled, directly or indirectly, by one or more such common
carriers, and
(B) the use under such lease is expected to be use within the
United States,
all amounts includible in gross income by the taxpayer with
respect to such railroad rolling stock (including gain from sale
or other disposition of such railroad rolling stock) shall be
treated as income from sources within the United States. The
requirements of subparagraph (B) of the preceding sentence shall
be treated as satisfied if the only expected use outside the
United States is use by a person (whether or not a United States
person) in Canada or Mexico on a temporary basis which is not
expected to exceed a total of 90 days in any taxable year.
(2) Paragraph (1) not to apply where lessor is a member of
controlled group which includes a railroad
Paragraph (1) shall not apply to a lease between two members of
the same controlled group of corporations (as defined in section
1563) if any member of such group is a domestic common carrier by
railroad or a switching or terminal company all of whose stock is
owned by one or more domestic common carriers by railroad.
(3) Denial of foreign tax credit
No credit shall be allowed under section 901 for any payments
to foreign countries with respect to any amount received by the
taxpayer with respect to railroad rolling stock which is subject
to paragraph (1).
(f) Cross reference
For treatment of interest paid by the branch of a foreign
corporation, see section 884(f).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 275; Pub. L. 86-779, Sec. 3(b),
Sept. 14, 1960, 74 Stat. 998; Pub. L. 87-834, Sec. 9(c), Oct. 16,
1962, 76 Stat. 1001; Pub. L. 89-809, title I, Sec. 102(a)(1)-(3),
(b), (c), Nov. 13, 1966, 80 Stat. 1541-1543; Pub. L. 91-172, title
IV, Sec. 435(a), Dec. 30, 1969, 83 Stat. 625; Pub. L. 92-9, Sec.
3(a)(2), Apr. 1, 1971, 85 Stat. 15; Pub. L. 92-178, title III, Sec.
314(a), title V, Sec. 503, Dec. 10, 1971, 85 Stat. 528, 550; Pub.
L. 93-625, Secs. 8, 9(a), Jan. 3, 1975, 88 Stat. 2116; Pub. L.
94-455, title X, Secs. 1036(a), 1041, 1051(h)(3), title XIX, Secs.
1901(b)(26)(A), (B), (c)(7), 1904(b)(10)(B), 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1633, 1634, 1647, 1798, 1803, 1817, 1834; Pub. L.
95-30, title I, Sec. 102(b)(9), May 23, 1977, 91 Stat. 138; Pub. L.
95-600, title III, Sec. 370(a), title V, Sec. 540(a), Nov. 6, 1978,
92 Stat. 2858, 2887; Pub. L. 96-499, title XI, Sec. 1124, Dec. 5,
1980, 94 Stat. 2690; Pub. L. 96-605, title I, Sec. 104(a), Dec. 28,
1980, 94 Stat. 3523; Pub. L. 98-21, title I, Sec. 121(d), Apr. 20,
1983, 97 Stat. 83; Pub. L. 99-514, title I, Sec. 104(b)(11), title
XII, Secs. 1211(b)(1)(B), 1212(d), 1214(a), (b), (c)(5), 1241(b),
Oct. 22, 1986, 100 Stat. 2105, 2536, 2539, 2541-2543, 2579; Pub. L.
100-203, title X, Sec. 10221(d)(4), Dec. 22, 1987, 101 Stat.
1330-409; Pub. L. 100-647, title I, Secs. 1012(g)(3), (i)(10),
(14)(B), (q)(7), (9), (15), 1018(u)(39), Nov. 10, 1988, 102 Stat.
3501, 3509, 3510, 3524, 3525, 3592; Pub. L. 101-239, title VII,
Secs. 7811(i)(2), 7841(d)(9), Dec. 19, 1989, 103 Stat. 2409, 2428;
Pub. L. 101-508, title XI, Secs. 11801(a)(29), (c)(6)(C), (14),
11813(b)(17), Nov. 5, 1990, 104 Stat. 1388-521, 1388-524, 1388-527,
1388-555; Pub. L. 104-188, title I, Sec. 1702(h)(9), Aug. 20, 1996,
110 Stat. 1874; Pub. L. 105-34, title XI, Sec. 1174(a)(1), Aug. 5,
1997, 111 Stat. 989; Pub. L. 107-16, title VI, Sec. 621(a), June 7,
2001, 115 Stat. 111.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
2001 - Subsec. (a)(3). Pub. L. 107-16, Secs. 621(a), 901,
temporarily struck out "except for purposes of sections 79 and 105
and subchapter D," after "In addition," in concluding provisions.
See Effective and Termination Dates of 2001 Amendment note below.
1997 - Subsec. (a)(3). Pub. L. 105-34 inserted concluding
provisions "In addition, except for purposes of sections 79 and 105
and subchapter D, compensation for labor or services performed in
the United States shall not be deemed to be income from sources
within the United States if the labor or services are performed by
a nonresident alien individual in connection with the individual's
temporary presence in the United States as a regular member of the
crew of a foreign vessel engaged in transportation between the
United States and a foreign country or a possession of the United
States."
1996 - Subsec. (e)(1)(A). Pub. L. 104-188 provided that the
amendment made by section 11813(b)(17) of Pub. L. 101-508 shall be
applied as if the material stricken by such amendment included the
closing parenthesis after "section 48(a)(5)". See 1990 Amendment
note below.
1990 - Subsec. (a)(1)(A), (B). Pub. L. 101-508, Sec.
11801(a)(29), (c)(14), inserted "and" at end of subpar. (A),
substituted a period for a comma at end of subpar. (B), and struck
out subpars. (C) and (D) which read as follows:
"(C) interest on a debt obligation which was part of an issue
with respect to which an election has been made under subsection
(c) of section 4912 (as in effect before July 1, 1974) and which,
when issued (or treated as issued under subsection (c)(2) of such
section), had a maturity not exceeding 15 years and, when issued,
was purchased by one or more underwriters with a view to
distribution through resale, but only with respect to interest
attributable to periods after the date of such election, and
"(D) interest on a debt obligation which was part of an issue
which -
"(i) was part of an issue outstanding on April 1, 1971,
"(ii) was guaranteed by a United States person,
"(iii) was treated under chapter 41 as a debt obligation of a
foreign obligor,
"(iv) as of June 30, 1974, had a maturity of not more than 15
years, and
"(v) when issued, was purchased by one or more underwriters for
the purpose of distribution through resale."
Subsec. (e)(1)(A). Pub. L. 101-508, Sec. 11813(b)(17), which
directed the substitution of "which is section 1245 property (as
defined in section 1245(a)(3))" for "which is section 38 property
(or would be section 38 property but for section 48(a)(5)", was
executed by making the substitution for "which is section 38
property (or would be section 38 property but for section
48(a)(5))". See 1996 Amendment note above.
Subsec. (e)(2). Pub. L. 101-508, Sec. 11801(c)(6)(C), substituted
"all of whose stock is owned by one or more domestic common
carriers by railroad" for "referred to in subparagraph (B) of
section 184(d)(1)".
1989 - Subsec. (a)(6). Pub. L. 101-239, Sec. 7811(i)(2),
substituted "865(i)(1)" for "865(h)(1)".
Subsec. (e)(1). Pub. L. 101-239, Sec. 7841(d)(9), substituted
"section 862(a)" for "section 826(a)" in introductory provisions.
1988 - Subsec. (a)(2)(B). Pub. L. 100-647, Sec. 1012(q)(7),
substituted "other than income described in section 884(d)(2)" for
"other than under section 884(d)(2)" in two places.
Subsec. (a)(2)(C). Pub. L. 100-647, Sec. 1012(q)(15), substituted
"section 243(e)" for "section 243(d)".
Subsec. (a)(6). Pub. L. 100-647, Sec. 1018(u)(39), substituted
"inventory property" for "personal property" in heading.
Subsec. (a)(7). Pub. L. 100-647, Sec. 1012(i)(10), amended par.
(7) generally. Prior to amendment, par. (7) read as follows:
"Amounts received as underwriting income (as defined in section
832(b)(3)) derived from the insurance of United States risks (as
defined in section 953(a))."
Subsec. (c)(1)(B). Pub. L. 100-647, Sec. 1012(g)(3), inserted
"or, in the case of a corporation, is attributable to income so
derived by a subsidiary of such corporation" after parenthetical in
cl. (i), struck out "or chain of subsidiaries of such corporation"
after "by a subsidiary" in cl. (ii), and inserted sentence at end
defining "subsidiary".
Subsec. (c)(2)(B)(ii). Pub. L. 100-647, Sec. 1012(i)(14)(B),
amended cl. (ii) generally. Prior to amendment, cl. (ii) read as
follows: "such section shall be applied by substituting '10
percent' for '50 percent' each place it appears."
Subsec. (f). Pub. L. 100-647, Sec. 1012(g)(9), added subsec. (f).
1987 - Subsec. (a)(2). Pub. L. 100-203, Sec. 10221(d)(4)(B),
inserted at end "In the case of any dividend from a 20-percent
owned corporation (as defined in section 243(c)(2)), subparagraph
(B) shall be applied by substituting '100/80th' for '100/70th'."
Subsec. (a)(2)(B). Pub. L. 100-203, Sec. 10221(d)(4)(A), which
directed that subpar. (B) be amended by substituting "100/70th" for
"100/85th", was executed by substituting "100/70th" for "100/85ths"
to reflect the probable intent of Congress.
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1241(b)(1)(A),
substituted "noncorporate residents or domestic corporations" for
"residents, corporate or otherwise," in introductory text.
Subsec. (a)(1)(A). Pub. L. 99-514, Sec. 1214(a)(1), (c)(5)(A),
amended subpar. (B) generally and redesignated it as (A). Prior to
amendment and redesignation, former subpar. (B) read as follows:
"interest received from a resident alien individual or a domestic
corporation, when it is shown to the satisfaction of the Secretary
that less than 20 percent of the gross income from all sources of
such individual or such corporation has been derived from sources
within the United States, as determined under the provisions of
this part, for the 3-year period ending with the close of the
taxable year of such individual or such corporation preceding the
payment of such interest, or for such part of such period as may be
applicable,". Former subpar. (A), which read "interest on amounts
described in subsection (c) received by a nonresident alien
individual or a foreign corporation, if such interest is not
effectively connected with the conduct of a trade or business
within the United States,", was struck out.
Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 1241(b)(1)(B),
redesignated subpar. (D), as previously redesignated and amended by
Sec. 1214(c)(5)(A), (B) of Pub. L. 99-514, as (B) and struck out
former subpar. (B) [previously (C)] which read as follows:
"interest received from a foreign corporation (other than interest
paid or credited by a domestic branch of a foreign corporation, if
such branch is engaged in the commercial banking business), when it
is shown to the satisfaction of the Secretary that less than 50
percent of the gross income from all sources of such foreign
corporation for the 3-year period ending with the close of its
taxable year preceding the payment of such interest (or for such
part of such period as the corporation has been in existence) was
effectively connected with the conduct of a trade or business
within the United States,".
Pub. L. 99-514, Sec. 1214(c)(5)(A), (B), redesignated former
subpar. (F) as (D), substituted in cl. (ii), "subparagraph (B) of
section 871(i)(3)" for "paragraph (2) of subsection (c)", and
redesignated former subpar. (C) as (B). Former subpar. (B)
redesignated (A).
Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 1241(b)(1)(B),
redesignated subpar. (E), as previously redesignated by Sec.
1214(c)(5)(A) of Pub. L. 99-514, as (C) and struck out former
subpar. (C) [previously (D)] which read as follows: "in the case of
interest received from a foreign corporation (other than interest
paid or credited by a domestic branch of a foreign corporation, if
such branch is engaged in the commercial banking business), 50
percent or more of the gross income of which from all sources for
the 3-year period ending with the close of its taxable year
preceding the payment of such interest (or for such part of such
period as the corporation has been in existence) was effectively
connected with the conduct of a trade or business within the United
States, an amount of such interest which bears the same ratio to
such interest as the gross income of such foreign corporation for
such period which was not effectively connected with the conduct of
a trade or business within the United States bears to its gross
income from all sources,".
Pub. L. 99-514, Sec. 1214(c)(5)(A), redesignated subpar. (D) as
(C). Former subpar. (C) redesignated (B).
Subsec. (a)(1)(D). Pub. L. 99-514, Sec. 1214(c)(5)(A),
redesignated subpar. (H) as (F). Pub. L. 99-514, Sec.
1241(b)(1)(B), then redesignated such subpar. (F) as (D). The
original subpar. (D) was redesignated (C) and struck out, and the
original subpar. (F) was redesignated (D), then (B).
Subsec. (a)(1)(E). Pub. L. 99-514, Sec. 1241(b)(1)(B),
redesignated subpar. (E), as previously redesignated by Sec.
1214(c)(5)(A) of Pub. L. 99-514, as (C).
Pub. L. 99-514, Sec. 1214(c)(5)(A), redesignated subpar. (G) as
(E) and struck out former subpar. (E) which read as follows:
"income derived by a foreign central bank of issue from bankers'
acceptances,".
Subsec. (a)(1)(F). Pub. L. 99-514, Secs. 1214(c)(5)(A),
1241(b)(1)(B), redesignated successively former subpar. (F) as (D)
and (B), respectively.
Subsec. (a)(1)(G). Pub. L. 99-514, Secs. 1214(c)(5)(A),
1241(b)(1)(B), redesignated successively former subpar. (G) as (E)
and (C), respectively.
Subsec. (a)(1)(H). Pub. L. 99-514, Secs. 1214(c)(5)(A),
1241(b)(1)(B), redesignated successively former subpar. (H) as (F)
and (D), respectively.
Subsec. (a)(2)(A). Pub. L. 99-514, Sec. 1214(b), amended subpar.
(A) generally. Prior to amendment, subpar. (A) read as follows:
"from a domestic corporation other than a corporation which has an
election in effect under section 936, and other than a corporation
less than 20 percent of whose gross income is shown to the
satisfaction of the Secretary to have been derived from sources
within the United States, as determined under the provisions of
this part, for the 3-year period ending with the close of the
taxable year of such corporation preceding the declaration of such
dividends (or for such part of such period as the corporation has
been in existence), or".
Subsec. (a)(2)(B). Pub. L. 99-514, Sec. 1241(b)(2), substituted
"25 percent" for "50 percent" and inserted "(or treated as
effectively connected other than under section 884(d)(2))" in two
places.
Subsec. (a)(6). Pub. L. 99-514, Sec. 1211(b)(1)(B), substituted
"inventory property (within the meaning of section 865(h)(1))" for
"personal property".
Subsec. (b). Pub. L. 99-514, Sec. 104(b)(11), substituted "the
standard deduction" for "the zero bracket amount".
Subsec. (c). Pub. L. 99-514, Sec. 1214(a)(2), amended subsec. (c)
generally, substituting provisions relating to foreign business
requirements for provisions relating to interest on deposits.
Subsec. (d). Pub. L. 99-514, Sec. 1214(c)(5)(C), amended subsec.
(d) generally, substituting provision for special rule for
application of subsec. (a)(2)(B) for former provision for special
rules for application of subsec. (a), pars. (1)(B) to (1)(D) and
(2)(B), pars. (1) and (2) thereof relating to new entities and
transition rule provisions.
Subsecs. (e), (f). Pub. L. 99-514, Sec. 1212(d), redesignated
subsec. (f) as (e) and struck out former subsec. (e) relating to
treatment of income from certain leased aircraft, vessels, and
spacecraft as income from sources within the United States.
1983 - Subsec. (a)(8). Pub. L. 98-21 added par. (8).
1980 - Subsec. (a)(5). Pub. L. 96-499 substituted "Disposition of
United States real property interest" for "Sale or exchange of real
property" in heading and "disposition of a United States real
property interest (as defined in section 897(c))" for "sale or
exchange of real property located in the United States" in text.
Subsec. (e). Pub. L. 96-605 substituted provision directing that
income from certain leased aircraft, vessels, and spacecraft be
treated as income from sources within the United States for
provision permitting the taxpayer to elect to treat income from
certain aircraft and vessels as income from sources within the
United States and prescribing the manner of revocating such an
election.
1978 - Subsec. (a)(1)(F). Pub. L. 95-600, Sec. 540(a), designated
existing provisions as cl. (i) and added cl. (ii).
Subsec. (f). Pub. L. 95-600, Sec. 370(a), added subsec. (f).
1977 - Subsec. (b). Pub. L. 95-30 provided that, in the case of
an individual who does not itemize deductions, an amount equal to
the zero bracket amount shall be considered a deduction which
cannot definitely be allocated to some item or class of gross
income.
1976 - Subsec. (a)(1). Pub. L. 94-455, Secs. 1901(c)(7),
1904(b)(10)(B), struck out ", any Territory, any political
subdivision of a Territory," after "United States" in provisions
preceding subpar. (A) and, in subpar. (G), substituted "subsection
(c) of section 4912 (as in effect before July 1, 1974)" for
"section 4912(c)" and "subsection (c)(2) of such section" for
"section 4912(c)(2)".
Subsec. (a)(2)(A). Pub. L. 94-455, Secs. 1051(h)(3),
1906(b)(13)(A), substituted "other than a corporation which has an
election in effect under section 936" for "other than a corporation
entitled to the benefits of section 931" and struck out "or his
delegate" after "Secretary".
Subsec. (a)(2)(D). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (a)(5), (6). Pub. L. 94-455, Sec. 1901(b)(26)(A),
substituted "sale or exchange" for "sale" in headings and text.
Subsec. (a)(7). Pub. L. 94-455, Sec. 1036(a), added par. (7).
Subsec. (c)(3). Pub. L. 94-455, Sec. 1041, struck out provision
that subsecs. (a)(1)(A) and (c) would cease to apply effective with
respect to amounts paid or credited after Dec. 31, 1976.
Subsec. (e)(1). Pub. L. 94-455, Sec. 1901(b)(26)(B), substituted
"sale, exchange, or other disposition" for "sale or other
disposition".
Subsecs. (e)(2), (3). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
1975 - Subsec. (a)(1)(H). Pub. L. 93-625, Sec. 9(a), added
subpar. (H).
Subsec. (c)(3). Pub. L. 93-625, Sec. 8, substituted "1976" for
"1975".
1971 - Subsec. (a)(1)(G). Pub. L. 92-9 added subpar. (G).
Subsec. (a)(2)(D). Pub. L. 92-178, Sec. 503, added subpar. (D).
Subsec. (e). Pub. L. 92-178, Sec. 314(a), added subsec. (e).
1969 - Subsec. (a)(1)(C), (D). Pub. L. 91-172, Sec. 435(a)(1),
struck out "after December 31, 1972," after "interest paid or
credited" in parenthetical after "interest received from a foreign
corporation".
Subsec. (c)(3). Pub. L. 91-172, Sec. 435(a)(2), substituted
"1975" for "1972".
1966 - Subsec. (a)(1)(A). Pub. L. 89-809, Sec. 102(a)(1)(A),
substituted "interest on amounts described in subsection (c)
received by a nonresident alien individual or a foreign
corporation, if such interest is not effectively connected with the
conduct of a trade or business within the United States" for
"interest on deposits with persons carrying on the banking business
paid to persons not engaged in business within the United States".
Subsec. (a)(1)(B). Pub. L. 89-809, Sec. 102(a)(2), struck out
interest received from a resident foreign corporation, and
substituted "gross income from all sources of such individual or
such corporation" for "gross income of such resident payor or
domestic corporation", and "taxable year of such individual or such
corporation" for "taxable year of such payor".
Subsec. (a)(1)(C) to (F). Pub. L. 89-809, Sec. 102(a)(2), added
subpars. (C), (D), and (F), and redesignated former subpar. (C) as
(E).
Subsec. (a)(2)(B). Pub. L. 89-809, Sec. 102(b), substituted "50
percent of the gross income from all sources" for "50 percent of
the gross income", "effectively connected with the conduct of a
trade or business within the United States" for "derived from
sources within the United States as determined from the provisions
of this part", and "ratio to such dividends as the gross income of
the corporation for such period which was effectively connected
with the conduct of a trade or business within the United States
bears to its gross income from all sources" for "ratio to such
dividends as the gross income of the corporation for such period
derived from sources within the United States bears to its gross
income from all sources" and inserted "(other than dividends for
which a deduction is allowable under section 245(b))" after
"dividends" and "(and only to the extent)" after "extent".
Subsec. (a)(3)(C)(ii). Pub. L. 89-809, Sec. 102(c), inserted "an
individual who is a citizen or resident of the United States, a
domestic partnership, or" before "a domestic corporation" and
"individual, partnership, or" after "United States by such".
Subsecs. (c), (d). Pub. L. 89-809, Sec. 102(a)(1)(B), (3), added
subsecs. (c) and (d).
1962 - Subsec. (a)(2)(B). Pub. L. 87-834 substituted "to the
extent exceeding the amount which is 100/85ths of the amount of the
deduction allowable under section 245 in respect of such dividends"
for "to the extent exceeding the amount of the deduction allowable
under section 245 in respect of such dividends."
1960 - Subsec. (a)(2)(C). Pub. L. 86-779 added subpar. (C).
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Pub. L. 107-16, title VI, Sec. 621(b), June 7, 2001, 115 Stat.
111, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to remuneration for services performed in
plan years beginning after December 31, 2001."
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to remuneration for
services performed in taxable years beginning after Dec. 31, 1997,
see section 1174(c) of Pub. L. 105-34, set out as a note under
section 7701 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11813(b)(17) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 29 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7811(i)(2) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L.
100-647, to which such amendment relates, see section 7817 of Pub.
L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dividends received or
accrued after Dec. 31, 1987, in taxable years ending after such
date, see section 10221(e)(1) of Pub. L. 100-203, set out as a note
under section 243 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(11) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1211(b)(1)(B) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Amendment by section 1212(d) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with special rules for
certain leased property and for certain ships leased by United
States Navy, see section 1212(f) of Pub. L. 99-514, set out as a
note under section 863 of this title.
Section 1214(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(g)(1)(A), (2), Nov. 10, 1988, 102 Stat. 3500,
3501, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 871, 881, 1441, and 6049 of this title]
shall apply to payments made in a taxable year of the payor
beginning after December 31, 1986.
"(2) Treatment of certain interest. -
"(A) In general. - The amendments made by this section shall
not apply to any interest paid or accrued on any obligation
outstanding on December 31, 1985. The preceding sentence shall
not apply to any interest paid pursuant to any extension or
renewal of such an obligation agreed to after December 31, 1985.
"(B) Special rule for related payee. - If the payee of any
interest to which subparagraph (A) applies is related (within the
meaning of section 904(d)(2)(H) of the Internal Revenue Code of
1986) to the payor, such interest shall be treated for purposes
of section 904 of such Code as if the payor were a controlled
foreign corporation (within the meaning of section 957(a) of such
Code).
"(3) Transitional rule. -
"(A) Years before 1988. - In applying the amendments made by
this section to any payment made by a corporation in a taxable
year of such corporation beginning before January 1, 1988, the
requirements of clause (ii) of section 861(c)(1)(B) of the
Internal Revenue Code of 1986 (relating to active business
requirements), as amended by this section, shall not apply to
gross income of such corporation for taxable years beginning
before January 1, 1987.
"(B) Years after 1987. - In applying the amendments made by
this section to any payment made by a corporation in a taxable
year of such corporation beginning after December 31, 1987, the
testing period for purposes of section 861(c) of such Code (as so
amended) shall not include any taxable year beginning before
January 1, 1987.
"(4) Certain dividends. -
"(A) In general. - The amendments made by this section shall
not apply to any dividend paid before January 1, 1991, by a
qualified corporation with respect to stock which was outstanding
on May 31, 1985.
"(B) Qualified corporation. - For purposes of subparagraph (A),
the term 'qualified corporation' means any business systems
corporation which -
"(i) was incorporated in Delaware in February, 1979,
"(ii) is headquartered in Garden City, New York, and
"(iii) the parent corporation of which is a resident of
Sweden."
[Section 1012(g)(1)(B) of Pub. L. 100-647 provided that: "A
taxpayer may elect not to have the amendment made by subparagraph
(A) [amending section 1214(d)(1) of Pub. L. 99-514, set out above]
apply and to have section 1214(d)(1) of the Reform Act [section
1214(d)(1) of Pub. L. 99-514, set out above] apply as in effect
before such amendment. Such election shall be made at such time and
in such manner as the Secretary of the Treasury or his delegate may
prescribe."]
Amendment by section 1241(b) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1241(e) of
Pub. L. 99-514, set out as an Effective Date note under section 884
of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 98-21 applicable to benefits received after
Dec. 31, 1983, in taxable years ending after such date, except for
any portion of a lump-sum payment of social security benefits
received after Dec. 31, 1983, if the generally applicable payment
date for such portion was before Jan. 1, 1984, see section 121(g)
of Pub. L. 98-21, set out as an Effective Date note under section
86 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 104(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
property first leased after the date of the enactment of this Act
[Dec. 28, 1980]."
Amendment by Pub. L. 96-499 applicable to dispositions after June
18, 1980, see section 1125(a) of Pub. L. 96-499, set out as an
Effective Date note under section 897 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 370(b) of Pub. L. 95-600 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to all railroad rolling stock placed in
service with respect to the taxpayer after the date of the
enactment of this Act [Nov. 6, 1978].
"(2) Election to extend section 861(f) to railroad rolling stock
placed in service before date of enactment.
"(A) In general. - At the election of the taxpayer, the
amendment made by subsection (a) shall also apply, for taxable
years beginning after the date of the enactment of this Act, to
all railroad rolling stock placed in service with respect to the
taxpayer on or before such date of enactment. Such an election
may not be revoked except with the consent of the Secretary of
the Treasury or his delegate.
"(B) Manner and time of election and revocation. - An election
under subparagraph (A), and any revocation of such an election,
shall be made in such manner and at such time as the Secretary of
the Treasury or his delegate may by regulations prescribe."
Section 540(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Nov. 6, 1978]."
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1036(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and section 862 of this
title] shall apply to taxable years beginning after December 31,
1976."
For effective date of amendment by section 1051(h)(3) of Pub. L.
94-455, see section 1051(i)(1) of Pub. L. 94-455, set out as a note
under section 27 of this title.
Amendment by section 1901(b)(26)(A), (B), (c)(7) of Pub. L.
94-455 effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as a note under
section 2 of this title.
Amendment by section 1904(b)(10)(B) of Pub. L. 94-455 effective
on first day of first month which begins more than 90 days after
date of enactment of this Act [Oct. 4, 1976], see section 1904(d)
of Pub. L. 94-455, set out as a note under section 4041 of this
title.
EFFECTIVE DATE OF 1975 AMENDMENT
Section 9(c) of Pub. L. 93-625 provided that: "The amendment made
by subsection (a) [amending this section] applies to interest paid
after the date of enactment of this Act [Jan. 3, 1975], and the
amendment made by subsection (b) [amending section 2104 of this
title] applies with respect to estates of decedents dying after
such date."
EFFECTIVE DATE OF 1971 AMENDMENTS
Section 3(a)(3) of Pub. L. 92-9 provided that: "The amendments
made by this subsection [amending this section and section 4912 of
this title] shall take effect on the date of the enactment of this
Act [Apr. 1, 1971]."
Section 314(c) of Pub. L. 92-178 provided that: "The amendments
made by this section [amending this section and section 862 of this
title] shall apply to taxable years ending after August 15, 1971,
but only with respect to leases entered into after such date."
Amendment by section 503 of Pub. L. 92-178 applicable with
respect to taxable years ending after Dec. 31, 1971, except that a
corporation may not be a DISC for any taxable year beginning before
Jan. 1, 1972, see section 507 of Pub. L. 92-178, set out as an
Effective Date note under section 991 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 435(a)(1) of Pub. L. 91-172 provided that the amendment
made by that section is effective with respect to amounts paid or
credited after Dec. 31, 1969.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 102(e) of Pub. L. 89-809, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) The amendments made by subsections (a), (c), and (d)
[amending this section and sections 864 and 895 of this title]
shall apply with respect to taxable years beginning after December
31, 1966; except that in applying section 864(c)(4)(B)(iii) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by
subsection (d)) with respect to a binding contract entered into on
or before February 24, 1966, activities in the United States on or
before such date in negotiating or carrying out such contract shall
not be taken into account.
"(2) The amendments made by subsection (b) [amending this
section] shall apply with respect to amounts received after
December 31, 1966."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable in respect of any
distribution received by a domestic corporation after Dec. 31,
1964, and in respect of any distribution received by a domestic
corporation before Jan. 1, 1965, in a taxable year of such
corporation beginning after Dec. 31, 1962, but only to the extent
that such distribution is made out of the accumulated profits of a
foreign corporation for a taxable year (of such foreign
corporation) beginning after Dec. 31, 1962, see section 9(e) of
Pub. L. 87-834, set out as a note under section 902 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable to dividends received
after Dec. 31, 1959, in taxable years ending after such date, see
section 3(c) of Pub. L. 86-779, set out as a note under section 243
of this title.
SHORT TITLE OF 1971 AMENDMENT
Section 1(a) of Pub. L. 92-9 provided that: "This Act [amending
this section and sections 4911, 4912, 4914 to 4916, 4919 to 4921,
6651, 6680, and 6681 of this title and enacting provisions set out
as notes under this section and sections 6680 and 6681 of this
title] may be cited as the 'Interest Equalization Tax Extension Act
of 1971'."
SHORT TITLE OF 1966 AMENDMENT
Section 101 of title I of Pub. L. 89-809 provided that: "This
title [enacting sections 877, 896, 906, 981, 2107, 2108, and 6683
of this title, amending this section and sections 1, 11, 116, 154,
245, 301, 512, 542, 543, 545, 819, 821, 822, 831, 832, 841, 842,
864, 871, 872, 873, 874, 875, 881, 882, 884, 894, 895, 901, 904,
911, 931, 932, 952, 953, 1248, 1249, 1441, 1442, 1461, 2014, 2101,
2102, 2104, 2105, 2106, 2501, 2511, 3401, 6015, 6016, 6018, 6501,
6513, and 7701 of this title, redesignating former section 877 as
878, repealing section 1493, and enacting provisions set out as
notes under this section and sections 11, 871, 874, 894, 901, 904,
931, 2101, 2501, and 6501 of this title] may be cited as the
'Foreign Investors Tax Act of 1966'."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
DIVIDENDS RECEIVED OR ACCRUED DURING 1987
Subsec. (a)(2)(B) of this section to be applied by substituting
"100/80ths" for the fraction specified therein with regard to
dividends received or accrued during 1987, see section
1006(b)(1)(B) of Pub. L. 100-647 set out as a note under section
245 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
Section 1012(aa)(2)-(4) of title I of Pub. L. 100-647 provided
that:
"(2) Certain amendments to apply notwithstanding treaties. - The
following amendments made by the Reform Act [Pub. L. 99-514] shall
apply notwithstanding any treaty obligation of the United States in
effect on the date of the enactment of the Reform Act [Oct. 22,
1986]:
"(A) The amendments made by section 1201 of the Reform Act
[amending sections 864, 904, and 954 of this title].
"(B) The amendments made by title VII of the Reform Act
[enacting sections 53 and 55 to 59 of this title and amending
sections 5, 12, 26, 28, 29, 38, 48, 173, 174, 263, 381, 443, 703,
882, 897, 904, 936, 1016, 1363, 1366, 1561, 6154, 6425, and 6655
of this title] to the extent such amendments relate to the
alternative minimum tax foreign tax credit.
"(3) Certain amendments not to apply to the extent inconsistent
with treaties. - The following amendments made by the Reform Act
[Pub. L. 99-514] shall not apply to the extent the application of
such amendments would be contrary to any treaty obligation of the
United States in effect on the date of the enactment of the Reform
Act [Oct. 22, 1986]:
"(A) The amendments made by section 1211 of the Reform Act
[enacting section 865 of this title and amending this section and
sections 862 to 864, 871, 881, and 904 of this title] to the
extent -
"(i) such amendments apply in the case of an individual
treated as a resident of a foreign country under a treaty
obligation of the United States as so in effect, or
"(ii) such amendments relate to income of a nonresident from
the sale or exchange of inventory property which would
otherwise be sourced under section 865(e)(2) of the 1986 Code.
"(B) The amendments made by section 1212(a) of the Reform Act
[amending section 863 of this title]; except for purposes of
determining the amount of the foreign tax credit.
"(C) The amendments made by subsections (b) and (c) of section
1212 of the Reform Act [enacting section 887 of this title and
amending sections 872 and 883 of this title].
"(D) The amendments made by section 1214 of the Reform Act
[amending this section and sections 871, 881, 1441, and 6049 of
this title]; except for purposes of determining the amount of the
foreign tax credit.
"(E) The amendment made by section 1241(a) of the Reform Act
[enacting section 884 of this title and renumbering former
section 884 as 885] to the extent that, under a treaty obligation
of the United States, interest described in section 884(f)(1)(A)
of the 1986 Code (as added by such amendment) which is in excess
of amounts deducted would be treated as other than United States
source.
"(F) The amendment made by section 1241(b)(2)(A) of the Reform
Act [amending this section].
"(G) The amendment made by section 1241(a) of the Reform Act
[enacting section 884 of this title and renumbering former
section 884 as 885] to the extent such amendment relates to
section 884(f)(1)(B) of the 1986 Code.
"(H) The amendments made by section 1242 of the Reform Act
[amending section 864 of this title] to the extent they relate to
paragraph (7) of section 864(c) of the 1986 Code.
"(I) The amendment made by section 1247(a) of the Reform Act
[amending section 892 of this title].
"(J) The amendments made by section 123 of the Reform Act
[amending sections 74, 117, 1441, and 7871 of this title].
"(4) Treatment of technical corrections. - For purposes of
paragraphs (2) and (3), any amendment made by this title [see
Tables for classification] shall be treated as if it had been
included in the provision of the Reform Act [Pub. L. 99-514] to
which such amendment relates."
QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES; ALLOCATION AND
APPORTIONMENT; DEFINITIONS; SPECIAL RULES; EFFECTIVE DATES
Section 4009 of Pub. L. 100-647 provided that:
"(a) General Rule. - For purposes of sections 861(b), 862(b), and
863(b) of the 1986 Code, qualified research and experimental
expenditures shall be allocated and apportioned as follows:
"(1) Any qualified research and experimental expenditures
expended solely to meet legal requirements imposed by a political
entity with respect to the improvement or marketing of specific
products or processes for purposes not reasonably expected to
generate gross income (beyond de minimis amounts) outside the
jurisdiction of the political entity shall be allocated only to
gross income from sources within such jurisdiction.
"(2) In the case of any qualified research and experimental
expenditures (not allocated under paragraph (1)) to the extent -
"(A) that such expenditures are attributable to activities
conducted in the United States, 64 percent of such expenditures
shall be allocated and apportioned to income from sources
within the United States and deducted from such income in
determining the amount of taxable income from sources within
the United States, and
"(B) that such expenditures are attributable to activities
conducted outside the United States, 64 percent of such
expenditures shall be allocated and apportioned to income from
sources outside the United States and deducted from such income
in determining the amount of taxable income from sources
outside the United States.
"(3) The remaining portion of qualified research and
experimental expenditures (not allocated under paragraphs (1) and
(2)) shall be apportioned, at the annual election of the
taxpayer, on the basis of gross sales or gross income, except
that, if the taxpayer elects to apportion on the basis of gross
income, the amount apportioned to income from sources outside the
United States shall be at least 30 percent of the amount which
would be so apportioned on the basis of gross sales.
"(b) Qualified Research and Experimental Expenditures. - For
purposes of this section, the term 'qualified research and
experimental expenditures' means amounts which are research and
experimental expenditures within the meaning of section 174 of the
1986 Code. For purposes of this subsection, rules similar to the
rules of subsection (c) of section 174 of the 1986 Code shall
apply.
"(c) Special Rules for Expenditures Attributable to Activities
Conducted in Space, Etc. -
"(1) In general. - Any qualified research and experimental
expenditures described in paragraph (2) -
"(A) if incurred by a United States person, shall be
allocated and apportioned under this section in the same manner
as if they were attributable to activities conducted in the
United States, and
"(B) if incurred by a person other than a United States
person, shall be allocated and apportioned under this section
in the same manner as if they were attributable to activities
conducted outside the United States.
"(2) Description of expenditures. - For purposes of paragraph
(1), qualified research and experimental expenditures are
described in this paragraph if such expenditures are attributable
to activities conducted -
"(A) in space,
"(B) on or under water not within the jurisdiction (as
recognized by the United States) of a foreign country,
possession of the United States, or the United States, or
"(C) in Antarctica.
"(d) Affiliated Group. -
"(1) Except as provided in paragraph (2), the allocation and
apportionment required by subsection (a) shall be determined as
if all members of the affiliated group (as defined in subsection
(e)(5) of section 864 of the 1986 Code) were a single
corporation.
"(2) For purposes of the allocation and apportionment required
by subsection (a) -
"(A) sales and gross income from products produced in whole
or in part in a possession by an electing corporation (within
the meaning of section 936(h)(5)(E) of the 1986 Code); and
"(B) dividends from an electing corporation,
shall not be taken into account, except that this paragraph shall
not apply to sales of (and gross income and dividends
attributable to sales of) products with respect to which an
election under section 936(h)(5)(F) of the 1986 Code is not in
effect.
"(3) The qualified research and experimental expenditures taken
into account for purposes of subsection (a) shall be adjusted to
reflect the amount of such expenditures included in computing the
cost-sharing amount (determined under section 936(h)(5)(C)(i)(I)
of the 1986 Code).
"(4) The Secretary of the Treasury or his delegate may
prescribe such regulations as may be necessary to carry out the
purposes of this subsection, including regulations providing for
the source of gross income and the allocation and apportionment
of deductions to take into account the adjustments required by
paragraph (3).
"(5) Paragraph (6) of section 864(e) of the 1986 Code shall not
apply to qualified research and experimental expenditures.
"(e) Years to Which Section Applies. -
"(1) In general. - Except as provided in this subsection, this
section shall apply to the taxpayer's 1st taxable year beginning
after August 1, 1987.
"(2) Reduction in amounts to which section applies. -
Notwithstanding paragraph (1), this section shall only apply to
that portion of the qualified research and experimental
expenditures for the taxable year referred to in paragraph (1)
which bears the same ratio to the total amount of such
expenditures as -
"(A) the lesser of 4 months or the number of months in the
taxable year, bears to
"(B) the number of months in the taxable year."
1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF
RESEARCH AND EXPERIMENTAL EXPENDITURES
Section 1216 of Pub. L. 99-514 provided that:
"(a) General Rule. - For purposes of section 861(b), section
862(b), and section 863(b) of the Internal Revenue Code of 1954
[now 1986], notwithstanding section 864(e) of such Code -
"(1) 50 percent of all amounts allowable as a deduction for
qualified research and experimental expenditures shall be
apportioned to income from sources within the United States and
deducted from such income in determining the amount of taxable
income from sources within the United States, and
"(2) the remaining portion of such amounts shall be apportioned
on the basis of gross sales or gross income.
The preceding sentence shall not apply to any expenditures
described in section 1.861-8(e)(3)(i)(B) of the Income Tax
Regulations.
"(b) Qualified Research and Experimental Expenditures. - For
purposes of this section -
"(1) In general. - The term 'qualified research and
experimental expenditures' means amounts -
"(A) which are research and experimental expenditures within
the meaning of section 174 of such Code, and
"(B) which are attributable to activities conducted in the
United States.
"(2) Treatment of depreciation, etc. - Rules similar to the
rules of section 174(c) of such Code shall apply.
"(c) Effective Date. - This section shall apply to taxable years
beginning after August 1, 1986, and on or before August 1, 1987."
ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL
EXPENDITURES
Pub. L. 98-369, div. A, title I, Sec. 126, July 18, 1984, 98
Stat. 648, as amended by Pub. L. 99-272, title XIII, Sec. 13211,
Apr. 7, 1986, 100 Stat. 324; Pub. L. 99-514, Sec. 2, Oct. 22, 1986,
100 Stat. 2095, provided that:
"(a) In General. - For purposes of section 861(b), section
862(b), and section 863(b) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], all amounts allowable as a deduction for
qualified research and experimental expenditures shall be allocated
to income from sources within the United States and deducted from
such income in determining the amount of taxable income from
sources within the United States.
"(b) Qualified Research and Experimental Expenditures. - For
purposes of this section -
"(1) In general. - The term 'qualified research and
experimental expenditures' means amounts -
"(A) which are research and experimental expenditures within
the meaning of section 174 of such Code, and
"(B) which are attributable to activities conducted in the
United States.
"(2) Treatment of depreciation, etc. - Rules similar to the
rules of subsection (c) of section 174 of such Code shall apply.
"(c) Effective Dates. -
"(1) In general. - This section shall apply to taxable years
beginning after August 13, 1983, and on or before August 1, 1986.
"(2) Special rule. - If the taxpayer's 4th taxable year
beginning after August 13, 1981, is not described in paragraph
(1), this section shall apply also to such 4th taxable year."
CONFORMITY OF AMENDMENTS MADE BY FOREIGN INVESTORS TAX ACT OF 1966
WITH TREATY OBLIGATIONS OF THE UNITED STATES
Section 110 of title I of Pub. L. 89-809 provided that: "No
amendment made by this title [see Short Title note above] shall
apply in any case where its application would be contrary to any
treaty obligation of the United States. For purposes of the
preceding sentence, the extension of a benefit provided by any
amendment made by this title shall not be deemed to be contrary to
a treaty obligation of the United States."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 79, 105, 410, 414, 505,
638, 818, 862, 863, 864, 865, 871, 884, 904, 2104, 4948, 4980B of
this title.
-End-
-CITE-
26 USC Sec. 862 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 862. Income from sources without the United States
-STATUTE-
(a) Gross income from sources without United States
The following items of gross income shall be treated as income
from sources without the United States:
(1) interest other than that derived from sources within the
United States as provided in section 861(a)(1);
(2) dividends other than those derived from sources within the
United States as provided in section 861(a)(2);
(3) compensation for labor or personal services performed
without the United States;
(4) rentals or royalties from property located without the
United States or from any interest in such property, including
rentals or royalties for the use of or for the privilege of using
without the United States patents, copyrights, secret processes
and formulas, good will, trade-marks, trade brands, franchises,
and other like properties;
(5) gains, profits, and income from the sale or exchange of
real property located without the United States;
(6) gains, profits, and income derived from the purchase of
inventory property (within the meaning of section 865(i)(1))
within the United States and its sale or exchange without the
United States;
(7) underwriting income other than that derived from sources
within the United States as provided in section 861(a)(7); and
(8) gains, profits, and income from the disposition of a United
States real property interest (as defined in section 897(c)) when
the real property is located in the Virgin Islands.
(b) Taxable income from sources without United States
From the items of gross income specified in subsection (a) there
shall be deducted the expenses, losses, and other deductions
properly apportioned or allocated thereto, and a ratable part of
any expenses, losses, or other deductions which cannot definitely
be allocated to some item or class of gross income. The remainder,
if any, shall be treated in full as taxable income from sources
without the United States. In the case of an individual who does
not itemize deductions, an amount equal to the standard deduction
shall be considered a deduction which cannot definitely be
allocated to some item or class of gross income.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 276; Pub. L. 92-178, title III,
Sec. 314(b), Dec. 10, 1971, 85 Stat. 528; Pub. L. 94-455, title X,
Sec. 1036(b), title XIX, Sec. 1901(b)(26)(C), Oct. 4, 1976, 90
Stat. 1633, 1798; Pub. L. 95-30, title I, Sec. 102(b)(10), May 23,
1977, 91 Stat. 138; Pub. L. 97-34, title VIII, Sec. 831(a)(2), Aug.
13, 1981, 95 Stat. 352; Pub. L. 99-514, title I, Sec. 104(b)(12),
title XII, Sec. 1211(b)(1)(C), Oct. 22, 1986, 100 Stat. 2105, 2536;
Pub. L. 100-647, title I, Sec. 1012(e)(4), Nov. 10, 1988, 102 Stat.
3500; Pub. L. 101-239, title VII, Sec. 7811(i)(2), Dec. 19, 1989,
103 Stat. 2409.)
-MISC1-
AMENDMENTS
1989 - Subsec. (a)(6). Pub. L. 101-239 substituted "865(i)(1)"
for "865(h)(1)".
1988 - Subsec. (c). Pub. L. 100-647 repealed subsec. (c) which
read as follows:
"(c) Cross reference. - For source of amounts attributable to
certain aircraft and vessels, see section 861(e)."
1986 - Subsec. (a)(6). Pub. L. 99-514, Sec. 1211(b)(1)(C),
substituted "inventory property (within the meaning of section
865(h)(1))" for "personal property".
Subsec. (b). Pub. L. 99-514, Sec. 104(b)(12), substituted "the
standard deduction" for "the zero bracket amount".
1981 - Subsec. (a)(8). Pub. L. 97-34 added par. (8).
1977 - Subsec. (b). Pub. L. 95-30 provided that, in the case of
an individual who does not itemize deductions, an amount equal to
the zero bracket amount shall be considered a deduction which
cannot definitely be allocated to some item or class of gross
income.
1976 - Subsec. (a)(5), (6). Pub. L. 94-455, Sec. 1901(b)(26)(C),
inserted "or exchange" after "sale".
Subsec. (a)(7). Pub. L. 94-455, Sec. 1036(b), added par. (7).
1971 - Subsec. (c). Pub. L. 92-178 added subsec. (c).
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(12) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1211(b)(1)(C) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to dispositions after June
18, 1980, in taxable years ending after such date, see section
831(i) of Pub. L. 97-34, set out as a note under section 897 of
this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1036(b) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1976, see section 1036(c) of
Pub. L. 94-455, set out as a note under section 861 of this title.
Amendment by section 1901(b)(26)(C) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by Pub. L. 92-178 applicable to taxable years ending
after Aug. 15, 1971, but only with respect to leases entered into
after such date, see section 314(c) of Pub. L. 92-178, set out as a
note under section 861 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1211(b)(1)(C) of Pub.
L. 99-514 to the extent application of such amendment would be
contrary to any treaty obligation of the United States in effect on
Oct. 22, 1986, with provision that for such purposes any amendment
by title I of Pub. L. 100-647 be treated as if it had been included
in the provision of Pub. L. 99-514 to which such amendment relates,
see section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES; ALLOCATION AND
APPORTIONMENT; DEFINITIONS; SPECIAL RULES; EFFECTIVE DATES
For allocation and apportionment of qualified research and
experimental expenditures for purposes of sections 861 to 863 of
this title, see section 4009 of Pub. L. 100-647, set out as a note
under section 861 of this title.
1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF
RESEARCH AND EXPERIMENTAL EXPENDITURES
For rule governing allocation under subsec. (b) of this section
of amounts allowable as a deduction for qualified research and
experimental expenditures during taxable years beginning after Aug.
1, 1986, and on or before Aug. 1, 1987, see section 1216 of Pub. L.
99-514, set out as a note under section 861 of this title.
ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL
EXPENDITURES
For purposes of subsec. (b) of this section, all amounts
allowable as a deduction for qualified research and experimental
expenditures are to be allocated to income from sources within the
United States and deducted from such income in determining the
amount of taxable income from sources within the United States for
taxable years beginning after Aug. 13, 1983, and on or before Aug.
1, 1986, see section 126 of Pub. L. 98-369, set out as a note under
section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 638, 818, 861, 863, 864,
865 of this title.
-End-
-CITE-
26 USC Sec. 863 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 863. Special rules for determining source
-STATUTE-
(a) Allocation under regulations
Items of gross income, expenses, losses, and deductions, other
than those specified in sections 861(a) and 862(a), shall be
allocated or apportioned to sources within or without the United
States, under regulations prescribed by the Secretary. Where items
of gross income are separately allocated to sources within the
United States, there shall be deducted (for the purpose of
computing the taxable income therefrom) the expenses, losses, and
other deductions properly apportioned or allocated thereto and a
ratable part of other expenses, losses, or other deductions which
cannot definitely be allocated to some item or class of gross
income. The remainder, if any, shall be included in full as taxable
income from sources within the United States.
(b) Income partly from within and partly from without the United
States
In the case of gross income derived from sources partly within
and partly without the United States, the taxable income may first
be computed by deducting the expenses, losses, or other deductions
apportioned or allocated thereto and a ratable part of any
expenses, losses, or other deductions which cannot definitely be
allocated to some item or class of gross income; and the portion of
such taxable income attributable to sources within the United
States may be determined by processes or formulas of general
apportionment prescribed by the Secretary. Gains, profits, and
income -
(1) from services rendered partly within and partly without the
United States,
(2) from the sale or exchange of inventory property (within the
meaning of section 865(i)(1)) produced (in whole or in part) by
the taxpayer within and sold or exchanged without the United
States, or produced (in whole or in part) by the taxpayer without
and sold or exchanged within the United States, or
(3) derived from the purchase of inventory property (within the
meaning of section 865(i)(1)) within a possession of the United
States and its sale or exchange within the United States,
shall be treated as derived partly from sources within and partly
from sources without the United States.
(c) Source rule for certain transportation income
(1) Transportation beginning and ending in the United States
All transportation income attributable to transportation which
begins and ends in the United States shall be treated as derived
from sources within the United States.
(2) Other transportation having United States connection
(A) In general
50 percent of all transportation income attributable to
transportation which -
(i) is not described in paragraph (1), and
(ii) begins or ends in the United States,
shall be treated as from sources in the United States.
(B) Special rule for personal service income
Subparagraph (A) shall not apply to any transportation income
which is income derived from personal services performed by the
taxpayer, unless such income is attributable to transportation
which -
(i) begins in the United States and ends in a possession of
the United States, or
(ii) begins in a possession of the United States and ends
in the United States.
In the case of transportation income derived from, or in
connection with, a vessel, this subparagraph shall only apply
if the taxpayer is a citizen or resident alien.
(3) Transportation income
For purposes of this subsection, the term "transportation
income" means any income derived from, or in connection with -
(A) the use (or hiring or leasing for use) of a vessel or
aircraft, or
(B) the performance of services directly related to the use
of a vessel or aircraft.
For purposes of the preceding sentence, the term "vessel or
aircraft" includes any container used in connection with a vessel
or aircraft.
(d) Source rules for space and certain ocean activities
(1) In general
Except as provided in regulations, any income derived from a
space or ocean activity -
(A) if derived by a United States person, shall be sourced in
the United States, and
(B) if derived by a person other than a United States person,
shall be sourced outside the United States.
(2) Space or ocean activity
For purposes of paragraph (1) -
(A) In general
The term "space or ocean activity" means -
(i) any activity conducted in space, and
(ii) any activity conducted on or under water not within
the jurisdiction (as recognized by the United States) of a
foreign country, possession of the United States, or the
United States.
Such term includes any activity conducted in Antarctica.
(B) Exception for certain activities
The term "space or ocean activity" shall not include -
(i) any activity giving rise to transportation income (as
defined in section 863(c)),
(ii) any activity giving rise to international
communications income (as defined in subsection (e)(2)), and
(iii) any activity with respect to mines, oil and gas
wells, or other natural deposits to the extent within the
United States or any foreign country or possession of the
United States (as defined in section 638).
For purposes of applying section 638, the jurisdiction of any
foreign country shall not include any jurisdiction not
recognized by the United States.
(e) International communications income
(1) Source rules
(A) United States persons
In the case of any United States person, 50 percent of any
international communications income shall be sourced in the
United States and 50 percent of such income shall be sourced
outside the United States.
(B) Foreign persons
(i) In general
Except as provided in regulations or clause (ii), in the
case of any person other than a United States person, any
international communications income shall be sourced outside
the United States.
(ii) Special rule for income attributable to office or fixed
place of business in the United States
In the case of any person (other than a United States
person) who maintains an office or other fixed place of
business in the United States, any international
communications income attributable to such office or other
fixed place of business shall be sourced in the United
States.
(2) Definition
For purposes of this section, the term "international
communications income" includes all income derived from the
transmission of communications or data from the United States to
any foreign country (or possession of the United States) or from
any foreign country (or possession of the United States) to the
United States.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 277; Pub. L. 94-455, title XIX,
Secs. 1901(b)(26)(C), (D), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1798, 1799, 1834; Pub. L. 98-369, div. A, title I, Sec. 124(a),
July 18, 1984, 98 Stat. 646; Pub. L. 99-514, title XII, Secs.
1211(b)(1)(A), 1212(a), (e), 1213(a), Oct. 22, 1986, 100 Stat.
2536, 2539, 2540; Pub. L. 100-647, title I, Sec. 1012(e)(3)(A),
(f), Nov 10, 1988, 102 Stat. 3500; Pub. L. 101-239, title VII, Sec.
7811(i)(2), Dec. 19, 1989, 103 Stat. 2409; Pub. L. 105-34, title
XI, Sec. 1174(a)(2), Aug. 5, 1997, 111 Stat. 989.)
-MISC1-
AMENDMENTS
1997 - Subsec. (c)(2)(B). Pub. L. 105-34 inserted concluding
provisions "In the case of transportation income derived from, or
in connection with, a vessel, this subparagraph shall only apply if
the taxpayer is a citizen or resident alien."
1989 - Subsec. (b)(2), (3). Pub. L. 101-239 substituted
"865(i)(1)" for "865(h)(1)".
1988 - Pub. L. 100-647, Sec. 1012(e)(3)(A), substituted "Special
rules for determining source" for "Item not specified in section
861 or 862" in section catchline.
Subsec. (e)(2). Pub. L. 100-647, Sec. 1012(f), substituted
"foreign country (or possession of the United States)" for "foreign
country" in two places.
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1212(e), substituted
"services" for "transportation or other services".
Subsec. (b)(2), (3). Pub. L. 99-514, Sec. 1211(b)(1)(A),
substituted "inventory property (within the meaning of section
865(h)(1))" for "personal property".
Subsec. (c)(2). Pub. L. 99-514, Sec. 1212(a), amended par. (2)
generally, in subpar. (A) substituting provisions relating to other
transportation having United States connections for provisions
relating to transportation between United States and any
possession, and in subpar. (B) substituting provisions relating to
special rule for personal service income for provisions relating to
special rule for certain lessors of aircraft.
Subsecs. (d), (e). Pub. L. 99-514, Sec. 1213(a), added subsecs.
(d) and (e).
1984 - Subsec. (c). Pub. L. 98-369 added subsec. (c).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (b). Pub. L. 94-455, Secs. 1901(b)(26)(C), (D),
1906(b)(13)(A), struck out "or his delegate" after "Secretary" in
introductory provisions, and inserted "or exchange" after "sale" in
pars. (2) and (3), and "or exchanged" after "sold" in par. (2)
wherever appearing.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to remuneration for
services performed in taxable years beginning after Dec. 31, 1997,
see section 1174(c) of Pub. L. 105-34, set out as a note under
section 7701 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1211(b)(1)(A) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Section 1212(f) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 887 of this title
and amending this section and sections 861, 872, and 883 of this
title] shall apply to taxable years beginning after December 31,
1986.
"(2) Special rule for certain leased property. - The amendments
made by subsections (a) and (d) [amending this section and section
861 of this title] shall not apply to any income attributable to
property held by the taxpayer on January 1, 1986, if such property
was first leased by the taxpayer before January 1, 1986, in a lease
to which section 863(c)(2)(B) or 861(e) of the Internal Revenue
Code of 1954 [now 1986] (as in effect on the day before the date of
the enactment of this Act [Oct. 22, 1986]) applied.
"(3) Special rule for certain ships leased by the united states
navy. -
"(A) In general. - In the case of any property described in
subparagraph (B), paragraph (2) shall be applied by substituting
'1987' for '1986' each place it appears.
"(B) Property to which paragraph applies. - Property described
in this subparagraph consists of 4 ships which are to be leased
by the United States Navy and which are the subject of Internal
Revenue Service rulings bearing the following dates and which
involved the following amount of financing, respectively:
"March 5, 1986 $176,844,000
February 5, 1986 64,567,000
April 22, 1986 64,598,000
May 22, 1986 175,300,000."
Section 1213(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 124(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to transportation beginning after the date of the enactment
of this Act [July 18, 1984] in taxable years ending after such
date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(26)(C), (D) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendments by sections 1211(b)(1)(A) and
1212(a) of Pub. L. 99-514 to the extent application of such
amendments would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES; ALLOCATION AND
APPOINTMENT; DEFINITIONS; SPECIAL RULES; EFFECTIVE DATES
For allocation and apportionment of qualified research and
experimental expenditures for purposes of sections 861 to 863 of
this title, see section 4009 of Pub. L. 100-647, set out as a note
under section 861 of this title.
1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF
RESEARCH AND EXPERIMENTAL EXPENDITURES
For rule governing allocation under subsec. (b) of this section
of amounts allowable as a deduction for qualified research and
experimental expenditures during taxable years beginning after Aug.
1, 1986, and on or before Aug. 1, 1987, see section 1216 of Pub. L.
99-514, set out as a note under section 861 of this title.
ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL
EXPENDITURES
For purposes of subsec. (b) of this section, all amounts
allowable as a deduction for qualified research and experimental
expenditures are to be allocated to income from sources within the
United States and deducted from such income in determining the
amount of taxable income from sources within the United States for
taxable years beginning after Aug. 13, 1983, and on or before Aug.
1, 1986, see section 126 of Pub. L. 98-369, set out as a note under
section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 818, 864, 865, 887, 954
of this title.
-End-
-CITE-
26 USC Sec. 864 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 864. Definitions and special rules
-STATUTE-
(a) Produced
For purposes of this part, the term "produced" includes created,
fabricated, manufactured, extracted, processed, cured, or aged.
(b) Trade or business within the United States
For purposes of this part, part II, and chapter 3, the term
"trade or business within the United States" includes the
performance of personal services within the United States at any
time within the taxable year, but does not include -
(1) Performance of personal services for foreign employer
The performance of personal services -
(A) for a nonresident alien individual, foreign partnership,
or foreign corporation, not engaged in trade or business within
the United States, or
(B) for an office or place of business maintained in a
foreign country or in a possession of the United States by an
individual who is a citizen or resident of the United States or
by a domestic partnership or a domestic corporation,
by a nonresident alien individual temporarily present in the
United States for a period or periods not exceeding a total of 90
days during the taxable year and whose compensation for such
services does not exceed in the aggregate $3,000.
(2) Trading in securities or commodities
(A) Stocks and securities
(i) In general
Trading in stocks or securities through a resident broker,
commission agent, custodian, or other independent agent.
(ii) Trading for taxpayer's own account
Trading in stocks or securities for the taxpayer's own
account, whether by the taxpayer or his employees or through
a resident broker, commission agent, custodian, or other
agent, and whether or not any such employee or agent has
discretionary authority to make decisions in effecting the
transactions. This clause shall not apply in the case of a
dealer in stocks or securities.
(B) Commodities
(i) In general
Trading in commodities through a resident broker,
commission agent, custodian, or other independent agent.
(ii) Trading for taxpayer's own account
Trading in commodities for the taxpayer's own account,
whether by the taxpayer or his employees or through a
resident broker, commission agent, custodian, or other agent,
and whether or not any such employee or agent has
discretionary authority to make decisions in effecting the
transactions. This clause shall not apply in the case of a
dealer in commodities.
(iii) Limitation
Clauses (i) and (ii) shall apply only if the commodities
are of a kind customarily dealt in on an organized commodity
exchange and if the transaction is of a kind customarily
consummated at such place.
(C) Limitation
Subparagraphs (A)(i) and (B)(i) shall apply only if, at no
time during the taxable year, the taxpayer has an office or
other fixed place of business in the United States through
which or by the direction of which the transactions in stocks
or securities, or in commodities, as the case may be, are
effected.
(c) Effectively connected income, etc.
(1) General rule
For purposes of this title -
(A) In the case of a nonresident alien individual or a
foreign corporation engaged in trade or business within the
United States during the taxable year, the rules set forth in
paragraphs (2), (3), (4), (6), and (7) shall apply in
determining the income, gain, or loss which shall be treated as
effectively connected with the conduct of a trade or business
within the United States.
(B) Except as provided in paragraph (6) or (7) or in section
871(d) or sections 882(d) and (e), in the case of a nonresident
alien individual or a foreign corporation not engaged in trade
or business within the United States during the taxable year,
no income, gain, or loss shall be treated as effectively
connected with the conduct of a trade or business within the
United States.
(2) Periodical, etc., income from sources within United States -
factors
In determining whether income from sources within the United
States of the types described in section 871(a)(1), section
871(h), section 881(a), or section 881(c), or whether gain or
loss from sources within the United States from the sale or
exchange of capital assets, is effectively connected with the
conduct of a trade or business within the United States, the
factors taken into account shall include whether -
(A) the income, gain, or loss is derived from assets used in
or held for use in the conduct of such trade or business, or
(B) the activities of such trade or business were a material
factor in the realization of the income, gain, or loss.
In determining whether an asset is used in or held for use in the
conduct of such trade or business or whether the activities of
such trade or business were a material factor in realizing an
item of income, gain, or loss, due regard shall be given to
whether or not such asset or such income, gain, or loss was
accounted for through such trade or business.
(3) Other income from sources within United States
All income, gain, or loss from sources within the United States
(other than income, gain, or loss to which paragraph (2) applies)
shall be treated as effectively connected with the conduct of a
trade or business within the United States.
(4) Income from sources without United States
(A) Except as provided in subparagraphs (B) and (C), no income,
gain, or loss from sources without the United States shall be
treated as effectively connected with the conduct of a trade or
business within the United States.
(B) Income, gain, or loss from sources without the United
States shall be treated as effectively connected with the conduct
of a trade or business within the United States by a nonresident
alien individual or a foreign corporation if such person has an
office or other fixed place of business within the United States
to which such income, gain, or loss is attributable and such
income, gain, or loss -
(i) consists of rents or royalties for the use of or for the
privilege of using intangible property described in section
862(a)(4) derived in the active conduct of such trade or
business;
(ii) consists of dividends or interest, and either is derived
in the active conduct of a banking, financing, or similar
business within the United States or is received by a
corporation the principal business of which is trading in
stocks or securities for its own account; or
(iii) is derived from the sale or exchange (outside the
United States) through such office or other fixed place of
business of personal property described in section 1221(a)(1),
except that this clause shall not apply if the property is sold
or exchanged for use, consumption, or disposition outside the
United States and an office or other fixed place of business of
the taxpayer in a foreign country participated materially in
such sale.
(C) In the case of a foreign corporation taxable under part I
or part II of subchapter L, any income from sources without the
United States which is attributable to its United States business
shall be treated as effectively connected with the conduct of a
trade or business within the United States.
(D) No income from sources without the United States shall be
treated as effectively connected with the conduct of a trade or
business within the United States if it either -
(i) consists of dividends, interest, or royalties paid by a
foreign corporation in which the taxpayer owns (within the
meaning of section 958(a)), or is considered as owning (by
applying the ownership rules of section 958(b)), more than 50
percent of the total combined voting power of all classes of
stock entitled to vote, or
(ii) is subpart F income within the meaning of section
952(a).
(5) Rules for application of paragraph (4)(B)
For purposes of subparagraph (B) of paragraph (4) -
(A) in determining whether a nonresident alien individual or
a foreign corporation has an office or other fixed place of
business, an office or other fixed place of business of an
agent shall be disregarded unless such agent (i) has the
authority to negotiate and conclude contracts in the name of
the nonresident alien individual or foreign corporation and
regularly exercises that authority or has a stock of
merchandise from which he regularly fills orders on behalf of
such individual or foreign corporation, and (ii) is not a
general commission agent, broker, or other agent of independent
status acting in the ordinary course of his business,
(B) income, gain, or loss shall not be considered as
attributable to an office or other fixed place of business
within the United States unless such office or fixed place of
business is a material factor in the production of such income,
gain, or loss and such office or fixed place of business
regularly carries on activities of the type from which such
income, gain, or loss is derived, and
(C) the income, gain, or loss which shall be attributable to
an office or other fixed place of business within the United
States shall be the income, gain, or loss property allocable
thereto, but, in the case of a sale or exchange described in
clause (iii) of such subparagraph, the income which shall be
treated as attributable to an office or other fixed place of
business within the United States shall not exceed the income
which would be derived from sources within the United States if
the sale or exchange were made in the United States.
(6) Treatment of certain deferred payments, etc.
For purposes of this title, in the case of any income or gain
of a nonresident alien individual or a foreign corporation which
-
(A) is taken into account for any taxable year, but
(B) is attributable to a sale or exchange of property or the
performance of services (or any other transaction) in any other
taxable year,
the determination of whether such income or gain is taxable under
section 871(b) or 882 (as the case may be) shall be made as if
such income or gain were taken into account in such other taxable
year and without regard to the requirement that the taxpayer be
engaged in a trade or business within the United States during
the taxable year referred to in subparagraph (A).
(7) Treatment of certain property transactions
For purposes of this title, if -
(A) any property ceases to be used or held for use in
connection with the conduct of a trade or business within the
United States, and
(B) such property is disposed of within 10 years after such
cessation,
the determination of whether any income or gain attributable to
such disposition is taxable under section 871(b) or 882 (as the
case may be) shall be made as if such sale or exchange occurred
immediately before such cessation and without regard to the
requirement that the taxpayer be engaged in a trade or business
within the United States during the taxable year for which such
income or gain is taken into account.
(d) Treatment of related person factoring income
(1) In general
For purposes of the provisions set forth in paragraph (2), if
any person acquires (directly or indirectly) a trade or service
receivable from a related person, any income of such person from
the trade or service receivable so acquired shall be treated as
if it were interest on a loan to the obligor under the
receivable.
(2) Provisions to which paragraph (1) applies
The provisions set forth in this paragraph are as follows:
(A) Part III of subchapter G of this chapter (relating to
foreign personal holding companies).
(B) Section 904 (relating to limitation on foreign tax
credit).
(C) Subpart F of part III of this subchapter (relating to
controlled foreign corporations).
(3) Trade or service receivable
For purposes of this subsection, the term "trade or service
receivable" means any account receivable or evidence of
indebtedness arising out of -
(A) the disposition by a related person of property described
in section 1221(a)(1), or
(B) the performance of services by a related person.
(4) Related person
For purposes of this subsection, the term "related person"
means -
(A) any person who is a related person (within the meaning of
section 267(b)), and
(B) any United States shareholder (as defined in section
951(b)) and any person who is a related person (within the
meaning of section 267(b)) to such a shareholder.
(5) Certain provisions not to apply
(A) Certain exceptions
The following provisions shall not apply to any amount
treated as interest under paragraph (1) or (6):
(i) Subparagraphs (A)(iii)(II), (B)(ii), and (C)(iii)(III)
of section 904(d)(2) (relating to exceptions for export
financing interest).
(ii) Subparagraph (A) of section 954(b)(3) (relating to
exception where foreign base company income is less than 5
percent or $1,000,000).
(iii) Subparagraph (B) of section 954(c)(2) (relating to
certain export financing).
(iv) Clause (i) of section 954(c)(3)(A) (relating to
certain income received from related persons).
(B) Special rules for possessions
An amount treated as interest under paragraph (1) shall not
be treated as income described in subparagraph (A) or (B) of
section 936(a)(1) unless such amount is from sources within a
possession of the United States (determined after the
application of paragraph (1)).
(6) Special rule for certain income from loans of a controlled
foreign corporation
Any income of a controlled foreign corporation (within the
meaning of section 957(a)) from a loan to a person for the
purpose of financing -
(A) the purchase of property described in section 1221(a)(1)
of a related person, or
(B) the payment for the performance of services by a related
person,
shall be treated as interest described in paragraph (1).
(7) Exception for certain related persons doing business in same
foreign country
Paragraph (1) shall not apply to any trade or service
receivable acquired by any person from a related person if -
(A) the person acquiring such receivable and such related
person are created or organized under the laws of the same
foreign country and such related person has a substantial part
of its assets used in its trade or business located in such
same foreign country, and
(B) such related person would not have derived any foreign
base company income (as defined in section 954(a), determined
without regard to section 954(b)(3)(A)), or any income
effectively connected with the conduct of a trade or business
within the United States, from such receivable if it had been
collected by such related person.
(8) Regulations
The Secretary shall prescribe such regulations as may be
necessary to prevent the avoidance of the provisions of this
subsection or section 956(b)(3).(!1)
(e) Rules for allocating interest, etc.
For purposes of this subchapter -
(1) Treatment of affiliated groups
The taxable income of each member of an affiliated group shall
be determined by allocating and apportioning interest expense of
each member as if all members of such group were a single
corporation.
(2) Gross income method may not be used for interest
All allocations and apportionments of interest expense shall be
made on the basis of assets rather than gross income.
(3) Tax-exempt assets not taken into account
(A) In general
For purposes of allocating and apportioning any deductible
expense, any tax-exempt asset (and any income from such an
asset) shall not be taken into account. A similar rule shall
apply in the case of the portion of any dividend (other than a
qualifying dividend as defined in section 243(b)) equal to the
deduction allowable under section 243 or 245(a) with respect to
such dividend and in the case of a like portion of any stock
the dividends on which would be so deductible and would not be
qualifying dividends (as so defined).
(B) Assets producing exempt extraterritorial income
For purposes of allocating and apportioning any interest
expense, there shall not be taken into account any qualifying
foreign trade property (as defined in section 943(a)) which is
held by the taxpayer for lease or rental in the ordinary course
of trade or business for use by the lessee outside the United
States (as defined in section 943(b)(2)).
(4) Basis of stock in nonaffiliated 10-percent owned corporations
adjusted for earnings and profits changes
(A) In general
For purposes of allocating and apportioning expenses on the
basis of assets, the adjusted basis of any stock in a
nonaffiliated 10-percent owned corporation shall be -
(i) increased by the amount of the earnings and profits of
such corporation attributable to such stock and accumulated
during the period the taxpayer held such stock, or
(ii) reduced (but not below zero) by any deficit in
earnings and profits of such corporation attributable to such
stock for such period.
(B) Nonaffiliated 10-percent owned corporation
For purposes of this paragraph, the term "nonaffiliated
10-percent owned corporation" means any corporation if -
(i) such corporation is not included in the taxpayer's
affiliated group, and
(ii) members of such affiliated group own 10 percent or
more of the total combined voting power of all classes of
stock of such corporation entitled to vote.
(C) Earnings and profits of lower tier corporations taken into
account
(i) In general
If, by reason of holding stock in a nonaffiliated
10-percent owned corporation, the taxpayer is treated under
clause (iii) as owning stock in another corporation with
respect to which the stock ownership requirements of clause
(ii) are met, the adjustment under subparagraph (A) shall
include an adjustment for the amount of the earnings and
profits (or deficit therein) of such other corporation which
are attributable to the stock the taxpayer is so treated as
owning and to the period during which the taxpayer is treated
as owning such stock.
(ii) Stock ownership requirements
The stock ownership requirements of this clause are met
with respect to any corporation if members of the taxpayer's
affiliated group own (directly or through the application of
clause (iii)) 10 percent or more of the total combined voting
power of all classes of stock of such corporation entitled to
vote.
(iii) Stock owned through entities
For purposes of this subparagraph, stock owned (directly or
indirectly) by a corporation, partnership, or trust shall be
treated as being owned proportionately by its shareholders,
partners, or beneficiaries. Stock considered to be owned by a
person by reason of the application of the preceding
sentence, shall, for purposes of applying such sentence, be
treated as actually owned by such person.
(D) Coordination with subpart F, etc.
For purposes of this paragraph, proper adjustment shall be
made to the earnings and profits of any corporation to take
into account any earnings and profits included in gross income
under section 951 or under any other provision of this title
and reflected in the adjusted basis of the stock.
(5) Affiliated group
For purposes of this subsection -
(A) In general
Except as provided in subparagraph (B), the term 'affiliated
group' has the meaning given such term by section 1504
(determined without regard to paragraph (4) of section
1504(b)).
(B) Treatment of certain financial institutions
For purposes of subparagraph (A), any corporation described
in subparagraph (C) shall be treated as an includible
corporation for purposes of section 1504 only for purposes of
applying such section separately to corporations so described.
This subparagraph shall not apply for purposes of paragraph
(6).
(C) Description
A corporation is described in this subparagraph if -
(i) such corporation is a financial institution described
in section 581 or 591,
(ii) the business of such financial institution is
predominantly with persons other than related persons (within
the meaning of subsection (d)(4)) or their customers, and
(iii) such financial institution is required by State or
Federal law to be operated separately from any other entity
which is not such an institution.
(D) Treatment of bank holding companies
To the extent provided in regulations -
(i) a bank holding company (within the meaning of section
2(a) of the Bank Holding Company Act of 1956), and
(ii) any subsidiary of a financial institution described in
section 581 or 591 or of any bank holding company if such
subsidiary is predominantly engaged (directly or indirectly)
in the active conduct of a banking, financing, or similar
business,
shall be treated as a corporation described in subparagraph
(C).
(6) Allocation and apportionment of other expenses
Expenses other than interest which are not directly allocable
or apportioned to any specific income producing activity shall be
allocated and apportioned as if all members of the affiliated
group were a single corporation.
(7) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
section, including regulations providing -
(A) for the resourcing of income of any member of an
affiliated group or modifications to the consolidated return
regulations to the extent such resourcing or modification is
necessary to carry out the purposes of this section,
(B) for direct allocation of interest expense incurred to
carry out an integrated financial transaction to any interest
(or interest-type income) derived from such transaction,
(C) for the apportionment of expenses allocated to foreign
source income among the members of the affiliated group and
various categories of income described in section 904(d)(1),
(D) for direct allocation of interest expense in the case of
indebtedness resulting in a disallowance under section 246A,
(E) for appropriate adjustments in the application of
paragraph (3) in the case of an insurance company, and
(F) that this subsection shall not apply for purposes of any
provision of this subchapter to the extent the Secretary
determines that the application of this subsection for such
purposes would not be appropriate.
(f) Allocation of research and experimental expenditures
(1) In general
For purposes of sections 861(b), 862(b), and 863(b), qualified
research and experimental expenditures shall be allocated and
apportioned as follows:
(A) Any qualified research and experimental expenditures
expended solely to meet legal requirements imposed by a
political entity with respect to the improvement or marketing
of specific products or processes for purposes not reasonably
expected to generate gross income (beyond de minimis amounts)
outside the jurisdiction of the political entity shall be
allocated only to gross income from sources within such
jurisdiction.
(B) In the case of any qualified research and experimental
expenditures (not allocated under subparagraph (A)) to the
extent -
(i) that such expenditures are attributable to activities
conducted in the United States, 50 percent of such
expenditures shall be allocated and apportioned to income
from sources within the United States and deducted from such
income in determining the amount of taxable income from
sources within the United States, and
(ii) that such expenditures are attributable to activities
conducted outside the United States, 50 percent of such
expenditures shall be allocated and apportioned to income
from sources outside the United States and deducted from such
income in determining the amount of taxable income from
sources outside the United States.
(C) The remaining portion of qualified research and
experimental expenditures (not allocated under subparagraphs
(A) and (B)) shall be apportioned, at the annual election of
the taxpayer, on the basis of gross sales or gross income,
except that, if the taxpayer elects to apportion on the basis
of gross income, the amount apportioned to income from sources
outside the United States shall at least be 30 percent of the
amount which would be so apportioned on the basis of gross
sales.
(2) Qualified research and experimental expenditures
For purposes of this section, the term "qualified research and
experimental expenditures" means amounts which are research and
experimental expenditures within the meaning of section 174. For
purposes of this paragraph, rules similar to the rules of
subsection (c) of section 174 shall apply. Any qualified research
and experimental expenditures treated as deferred expenses under
subsection (b) of section 174 shall be taken into account under
this subsection for the taxable year for which such expenditures
are allowed as a deduction under such subsection.
(3) Special rules for expenditures attributable to activities
conducted in space, etc.
(A) In general
Any qualified research and experimental expenditures
described in subparagraph (B) -
(i) if incurred by a United States person, shall be
allocated and apportioned under this section in the same
manner as if they were attributable to activities conducted
in the United States, and
(ii) if incurred by a person other than a United States
person, shall be allocated and apportioned under this section
in the same manner as if they were attributable to activities
conducted outside the United States.
(B) Description of expenditures
For purposes of subparagraph (A), qualified research and
experimental expenditures are described in this subparagraph if
such expenditures are attributable to activities conducted -
(i) in space,
(ii) on or under water not within the jurisdiction (as
recognized by the United States) of a foreign country,
possession of the United States, or the United States, or
(iii) in Antarctica.
(4) Affiliated group
(A) Except as provided in subparagraph (B), the allocation
and apportionment required by paragraph (1) shall be determined
as if all members of the affiliated group (as defined in
subsection (e)(5)) were a single corporation.
(B) For purposes of the allocation and apportionment required
by paragraph (1) -
(i) sales and gross income from products produced in whole
or in part in a possession by an electing corporation (within
the meaning of section 936(h)(5)(E)), and
(ii) dividends from an electing corporation,
shall not be taken into account, except that this subparagraph
shall not apply to sales of (and gross income and dividends
attributable to sales of) products with respect to which an
election under section 936(h)(5)(F) is not in effect.
(C) The qualified research and experimental expenditures
taken into account for purposes of paragraph (1) shall be
adjusted to reflect the amount of such expenditures included in
computing the cost-sharing amount (determined under section
936(h)(5)(C)(i)(I)).
(D) The Secretary may prescribe such regulations as may be
necessary to carry out the purposes of this paragraph,
including regulations providing for the source of gross income
and the allocation and apportionment of deductions to take into
account the adjustments required by subparagraph (B) or (C).
(E) Paragraph (6) of subsection (e) shall not apply to
qualified research and experimental expenditures.
(5) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this subsection,
including regulations relating to the determination of whether
any expenses are attributable to activities conducted in the
United States or outside the United States and regulations
providing such adjustments to the provisions of this subsection
as may be appropriate in the case of cost-sharing arrangements
and contract research.
(6) Applicability
This subsection shall apply to the taxpayer's first taxable
year (beginning on or before August 1, 1994) following the
taxpayer's last taxable year to which Revenue Procedure 92-56
applies or would apply if the taxpayer elected the benefits of
such Revenue Procedure.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 278; Pub. L. 89-809, title I,
Sec. 102(d), Nov. 13, 1966, 80 Stat. 1544; Pub. L. 94-455, title
XIX, Sec. 1901(a)(113), Oct. 4, 1976, 90 Stat. 1783; Pub. L.
98-369, div. A, title I, Secs. 123(a), 127(c), July 18, 1984, 98
Stat. 644, 651; Pub. L. 99-514, title XII, Secs. 1201(d)(4),
1211(b)(2), 1215(a), (b)(1), 1221(a)(2), 1223(b)(1), 1242(a), (b),
1275(c)(7), title XVIII, Secs. 1810(c)(2), (3), 1899A(21), Oct. 22,
1986, 100 Stat. 2525, 2536, 2544, 2545, 2550, 2558, 2580, 2599,
2824, 2959; Pub. L. 100-203, title X, Sec. 10242(b), Dec. 22, 1987,
101 Stat. 1330-423; Pub. L. 100-647, title I, Sec. 1012(a)(1)(B),
(d)(7), (10), (g)(5), (h)(1), (2)(A), (3)-(6), (p)(30), (r), Nov.
10, 1988, 102 Stat. 3494, 3498, 3499, 3501-3503, 3521, 3525; Pub.
L. 101-239, title VII, Sec. 7111, Dec. 19, 1989, 103 Stat. 2326;
Pub. L. 101-508, title XI, Sec. 11401(a), Nov. 5, 1990, 104 Stat.
1388-472; Pub. L. 102-227, title I, Sec. 101(a), Dec. 11, 1991, 105
Stat. 1686; Pub. L. 103-66, title XIII, Sec. 13234, Aug. 10, 1993,
107 Stat. 504; Pub. L. 105-34, title XI, Sec. 1162(a), Aug. 5,
1997, 111 Stat. 987; Pub. L. 106-170, title V, Sec.
532(c)(2)(N)-(P), Dec. 17, 1999, 113 Stat. 1931; Pub. L. 106-519,
Sec. 4(3), Nov. 15, 2000, 114 Stat. 2432.)
-REFTEXT-
REFERENCES IN TEXT
Section 956(b)(3), referred to in subsec. (d)(8), was
redesignated section 956(c)(3) by Pub. L. 103-66, title XIII, Sec.
13232(a)(1), Aug. 10, 1993, 107 Stat. 501.
Section 2(a) of the Bank Holding Company Act of 1956, referred to
in subsec. (e)(5)(D)(i), is classified to section 1841(a) of Title
12, Banks and Banking.
-MISC1-
AMENDMENTS
2000 - Subsec. (e)(3). Pub. L. 106-519 designated existing
provisions as subpar. (A), inserted heading, and added subpar. (B).
1999 - Subsecs. (c)(4)(B)(iii), (d)(3)(A), (6)(A). Pub. L.
106-170 substituted "section 1221(a)(1)" for "section 1221(1)".
1997 - Subsec. (b)(2)(A)(ii). Pub. L. 105-34 struck out ", or in
the case of a corporation (other than a corporation which is, or
but for section 542(c)(7), 542(c)(10), or 543(b)(1)(C) would be, a
personal holding company) the principal business of which is
trading in stocks or securities for its own account, if its
principal office is in the United States" after "dealer in stocks
or securities".
1993 - Subsec. (f)(1)(B). Pub. L. 103-66, Sec. 13234(a),
substituted "50 percent" for "64 percent" in cls. (i) and (ii).
Subsec. (f)(4)(D). Pub. L. 103-66, Sec. 13234(b)(2), substituted
"subparagraph (B) or (C)" for "subparagraph (C)".
Subsec. (f)(5), (6). Pub. L. 103-66, Sec. 13234(b)(1), added
pars. (5) and (6) and struck out heading and text of former par.
(5). Text read as follows:
"(A) In general. - This subsection shall apply to the taxpayer's
first 3 taxable years beginning after August 1, 1989, and on or
before August 1, 1992.
"(B) Reduction. - Notwithstanding subparagraph (A), in the case
of the taxpayer's first taxable year beginning after August 1,
1991, this subsection shall only apply to qualified research and
experimental expenditures incurred during the first 6 months of
such taxable year."
1991 - Subsec. (f)(5). Pub. L. 102-227 amended par. (5)
generally. Prior to amendment, par. (5) read as follows: "This
subsection shall apply to the taxpayer's first 2 taxable years
beginning after August 1, 1989, and on or before August 1, 1991."
1990 - Subsec. (f)(5). Pub. L. 101-508 substituted "Years" for
"Year" in heading and amended text generally. Prior to amendment,
text read as follows:
"(A) In general. - Except as provided in this paragraph, this
subsection shall apply to the taxpayer's first taxable year
beginning after August 1, 1989, and before August 2, 1990.
"(B) Reduction. - Notwithstanding subparagraph (A), this
subsection shall only apply to that portion of the qualified
research and experimental expenditures for the taxable year
referred to in subparagraph (A) which bears the same ratio to the
total amount of such expenditures as -
"(i) the lesser of 9 months or the number of months in the
taxable year, bears to
"(ii) the number of months in the taxable year."
1989 - Subsec. (f). Pub. L. 101-239 added subsec. (f).
1988 - Subsec. (b)(2)(A)(ii). Pub. L. 100-647, Sec. 1012(p)(30),
substituted "section 542(c)(7), 542(c)(10)," for "section
542(c)(7)".
Subsec. (c)(2). Pub. L. 100-647, Sec. 1012(g)(5), struck out at
end "In applying this paragraph and paragraph (4), interest
referred to in section 861(a)(1)(A) shall be considered income from
sources within the United States."
Subsec. (c)(4)(B)(i), (ii). Pub. L. 100-647, Sec. 1012(d)(10),
struck out "(including any gain or loss realized on the sale or
exchange of such property)" after "section 862(a)(4)" in cl. (i)
and ", or gain or loss from the sale or exchange of stock or notes,
bonds, or other evidences of indebtedness" after "dividends or
interest" in cl. (ii).
Subsec. (c)(4)(B)(iii). Pub. L. 100-647, Sec. 1012(d)(7), added
cl. (iii).
Subsec. (c)(6). Pub. L. 100-647, Sec. 1012(r)(2), amended par.
(6) generally. Prior to amendment, par. (6) read as follows: "For
purposes of this title, any income or gain of a nonresident alien
individual or a foreign corporation for any taxable year which is
attributable to a sale or exchange of property or the performance
of services (or any other transaction) in any other taxable year
shall be treated as effectively connected with the conduct of a
trade or business within the United States if it would have been so
treated if such income or gain were taken into account in such
other taxable year."
Subsec. (c)(7). Pub. L. 100-647, Sec. 1012(r)(1), amended par.
(7) generally. Prior to amendment, par. (7) read as follows: "For
purposes of this title, if any property ceases to be used or held
for use in connection with the conduct of a trade or business
within the United States, the determination of whether any income
or gain attributable to a sale or exchange of such property
occurring within 10 years after such cessation is effectively
connected with the conduct of a trade or business within the United
States shall be made as if such sale or exchange occurred
immediately before such cessation."
Subsec. (d)(5)(A)(i). Pub. L. 100-647, Sec. 1012(a)(1)(B),
substituted "(C)(iii)(III)" for "(C)(iii)".
Subsec. (e). Pub. L. 100-647, Sec. 1012(h)(6)(B), struck out
"(except as provided in regulations)" after "subchapter".
Subsec. (e)(1). Pub. L. 100-647, Sec. 1012(h)(2)(A), struck out
"from sources outside the United States" after "affiliated group".
Subsec. (e)(3). Pub. L. 100-647, Sec. 1012(h)(3), inserted
sentence at end and struck out former last sentence which read as
follows: "A similar rule shall apply in the case of any dividend
(other than a qualifying dividend as defined in section 243(b)) for
which a deduction is allowable under section 243 or 245(a) and any
stock the dividends on which would be so deductible and would not
be qualifying dividends (as so defined)."
Subsec. (e)(4). Pub. L. 100-647, Sec. 1012(h)(1), substituted
"nonaffiliated 10-percent owned corporations" for "certain
corporations" in heading and amended text generally. Prior to
amendment, text read as follows: "For purposes of allocating and
apportioning expenses on the basis of assets, the adjusted basis of
any asset which is stock in a corporation which is not included in
the affiliated group and in which members of the affiliated group
own 10 percent or more of the total combined voting power of all
classes of stock entitled to vote in such corporation shall be -
"(A) increased by the amount of the earnings and profits of
such corporation attributable to such stock and accumulated
during the period the taxpayer held such stock, or
"(B) reduced (but not below zero) by any deficit in earnings
and profits of such corporation attributable to such stock for
such period."
Subsec. (e)(5)(B). Pub. L. 100-647, Sec. 1012(h)(4)(B), inserted
at end "This subparagraph shall not apply for purposes of paragraph
(6)."
Subsec. (e)(5)(D). Pub. L. 100-647, Sec. 1012(h)(4)(A), added
subpar. (D).
Subsec. (e)(6). Pub. L. 100-647, Sec. 1012(h)(5), substituted
"directly allocable or apportioned" for "directly allocable and
apportioned".
Subsec. (e)(7)(D) to (F). Pub. L. 100-647, Sec. 1012(h)(6)(A),
added subpars. (D) to (F).
1987 - Subsec. (c)(4)(C). Pub. L. 100-203 inserted "or part II"
after "part I".
1986 - Pub. L. 99-514, Sec. 1215(b)(1), inserted "and special
rules" in section catchline.
Subsec. (c)(1)(A). Pub. L. 99-514, Sec. 1242(b)(1), inserted
reference to pars. (6) and (7).
Subsec. (c)(1)(B). Pub. L. 99-514, Sec. 1242(b)(2), inserted
"paragraph (6) or (7) or in".
Subsec. (c)(2). Pub. L. 99-514, Sec. 1899A(21), inserted a comma
between "section 871(h)" and "section 881(a)".
Subsec. (c)(4)(B)(iii). Pub. L. 99-514, Sec. 1211(b)(2), struck
out cl. (iii), which read as follows: "is derived from the sale or
exchange (without the United States) through such office or other
fixed place of business of personal property described in section
1221(1), except that this clause shall not apply if the property is
sold or exchanged for use, consumption, or disposition outside the
United States and an office or other fixed place of business of the
taxpayer outside the United States participated materially in such
sale or exchange."
Subsec. (c)(6), (7). Pub. L. 99-514, Sec. 1242(a), added pars.
(6) and (7).
Subsec. (d)(5)(A)(i). Pub. L. 99-514, Sec. 1201(d)(4), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
"Subparagraphs (A), (B), (C), and (D) of section 904(d)(2)
(relating to interest income to which separate limitation applies)
and subparagraph (J) of section 904(d)(3) (relating to interest
from members of same affiliated group)."
Pub. L. 99-514, Sec. 1810(c)(3), inserted "and subparagraph (J)
of section 904(d)(3) (relating to interest from members of same
affiliated group)".
Subsec. (d)(5)(A)(ii). Pub. L. 99-514, Sec. 1223(b)(1),
substituted "less than 5 percent or $1,000,000" for "less than 10
percent".
Subsec. (d)(5)(A)(iii). Pub. L. 99-514, Sec. 1221(a)(2), amended
cl. (iii) generally, substituting "section 954(c)(2) (relating to
certain export financing)" for "section 954(c)(3) (relating to
certain income derived in active conduct of trade or business)".
Subsec. (d)(5)(A)(iv). Pub. L. 99-514, Sec. 1221(a)(2), amended
cl. (iv) generally, substituting "Clause (i) of section
954(c)(3)(A) (relating to" for "Subparagraphs (A) and (B) of
section 954(c)(4) (relating to exception for".
Subsec. (d)(5)(B). Pub. L. 99-514, Sec. 1275(c)(7), amended
subpar. (B) generally, striking out cl. (i) heading, substituting
"An amount" for "Any amount", and striking out cl. (ii), Virgin
Islands corporations, which read as follows: "Subsection (b) of
section 934 shall not apply to any amount treated as interest under
paragraph (1) unless such amount is from sources within the Virgin
Islands (determined after the application of paragraph (1))."
Subsec. (d)(7), (8). Pub. L. 99-514, Sec. 1810(c)(2), added par.
(7) and redesignated former par. (7) as (8).
Subsec. (e). Pub. L. 99-514, Sec. 1215(a), added subsec. (e).
1984 - Subsec. (c)(2). Pub. L. 98-369, Sec. 127(c), substituted
"section 871(a)(1), section 871(h) section 881(a), or section
881(c)" for "section 871(a)(1) or section 881(a)".
Subsec. (d). Pub. L. 98-369, Sec. 123(a), added subsec. (d).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(113)(A),
substituted in heading "Produced" for "Sale, etc." and struck out
in text provisions relating to the definition of sale and sold.
Subsec. (c)(4)(B)(i). Pub. L. 94-455, Sec. 1901(a)(113)(B),
substituted "sale or exchange" for "sale".
Subsec. (c)(4)(B)(iii). Pub. L. 94-455, Sec. 1901(a)(113)(B),
(C), substituted "sold or exchanged" for "sold" and "sale or
exchange" for "sale" wherever appearing.
Subsec. (c)(5)(C). Pub. L. 94-455, Sec. 1901(a)(113)(B),
substituted "sale or exchange" for "sale" wherever appearing.
1966 - Pub. L. 89-809 designated existing provisions as subsec.
(a) and added subsecs. (b) and (c).
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-519 applicable to transactions after
Sept. 30, 2000, with special rules relating to existing foreign
sales corporations, see section 5 of Pub. L. 106-519, set out as an
Effective Date note under section 941 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1162(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1991 AMENDMENT
Section 101(b) of Pub. L. 102-227 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after August 1, 1989."
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11401(b) of Pub. L. 101-508 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after August 1, 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10242(d) of Pub. L.
100-203, set out as a note under section 816 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1201(d)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1201(e) of Pub. L. 99-514, set out as a note
under section 904 of this title.
Amendment by section 1211(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Section 1215(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(h)(7), Nov. 10, 1988, 102 Stat. 3504; Pub. L.
104-191, title V, Sec. 521(a), Aug. 21, 1996, 110 Stat. 2103,
provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section] shall apply to taxable years beginning after December 31,
1986.
"(2) Transitional rules. -
"(A) General phase-in. -
"(i) In general. - In the case of the 1st 3 taxable years of
the taxpayer beginning after December 31, 1986, the amendments
made by this section shall not apply to interest expenses paid
or accrued by the taxpayer during the taxable year with respect
to an aggregate amount of indebtedness which does not exceed
the general phase-in amount.
"(ii) General phase-in amount. - Except as provided in clause
(iii), the general phase-in amount for purposes of clause (i)
is the applicable percentage (determined under the following
table) of the aggregate amount of indebtedness of the taxpayer
outstanding on November 16, 1985:
The applicable
"In the case of the: percentage is:
1st taxable year 75
2nd taxable year 50
3rd taxable year 25.
--------------------------------------------------------------------
"(iii) Lower limit where taxpayer reduces indebtedness. - For
purposes of applying this subparagraph to interest expenses
attributable to any month, the general phase-in amount shall in
no event exceed the lowest amount of indebtedness of the
taxpayer outstanding as of the close of any preceding month
beginning after November 16, 1985. To the extent provided in
regulations, the average amount of indebtedness outstanding
during any month shall be used (in lieu of the amount
outstanding as of the close of such month) for purposes of the
preceding sentence.
"(B) Consolidation rule not to apply to certain interest. -
"(i) In general. - In the case of the 1st 5 taxable years of
the taxpayer beginning after December 31, 1986 -
"(I) subparagraph (A) shall not apply for purposes of
paragraph (1) of section 864(e) of the Internal Revenue Code
of 1986 (as added by this section), but
"(II) such paragraph (1) shall not apply to interest
expenses paid or accrued by the taxpayer during the taxable
year with respect to an aggregate amount of indebtedness
which does not exceed the special phase-in amount.
"(ii) Special phase-in amount. - The special phase-in amount
for purposes of clause (i) is the sum of -
"(I) the general phase-in amount as determined for purposes
of subparagraph (A),
"(II) the 5-year phase-in amount, and
"(III) the 4-year phase-in amount.
For purposes of applying this subparagraph to interest expense
attributable to any month, the special phase-in amount shall in
no event exceed the limitation determined under subparagraph
(A)(iii).
"(iii) 5-year phase-in amount. - The 5-year phase-in amount
is the lesser of -
"(I) the applicable percentage (determined under the
following table for purposes of this subclause) of the 5-year
debt amount, or
"(II) the applicable percentage (determined under the
following table for purposes of this subclause) of the 5-year
debt amount reduced by paydowns:
"In the case of the: The applicable The applicable
percentage for percentage for
purposes of purposes of
subclause (I) is: subclause (II)
is:
--------------------------------------------------------------------
1st taxable year 8(!1/3) 10
2nd taxable year 16(!2/3) 25
3rd taxable year 25 50
4th taxable year 33(!1/3) 100
5th taxable year 16 2/3 100.
--------------------------------------------------------------------
"(iv) 4-year phase-in amount. - The 4-year phase-in amount is
the lesser of -
"(I) the applicable percentage (determined under the
following table for purposes of this subclause) of the 4-year
debt amount, or
"(II) the applicable percentage (determined under the
following table for purposes of this subclause) of the 4-year
debt amount reduced by paydowns to the extent such paydowns
exceed the 5-year debt amount:
"In the case of the: The applicable The applicable
percentage for percentage for
purposes of purposes of
subclause (I) is: subclause (II)
is:
--------------------------------------------------------------------
1st taxable year 5 6 1/4
2nd taxable year 10 16 2/3
3rd taxable year 15 37 1/2
4th taxable year 20 100
5th taxable year 0 0.
--------------------------------------------------------------------
"(v) 5-year debt amount. - The term '5-year debt amount'
means the excess (if any) of -
"(I) the amount of the outstanding indebtedness of the
taxpayer on May 29, 1985, over
"(II) the amount of the outstanding indebtedness of the
taxpayer as of the close of December 31, 1983.
The 5-year debt amount shall not exceed the aggregate amount of
indebtedness of the taxpayer outstanding on November 16, 1985.
"(vi) 4-year debt amount. - The term '4-year debt amount'
means the excess (if any) of -
"(I) the amount referred to in clause (v)(II), over
"(II) the amount of the outstanding indebtedness of the
taxpayer as of the close of December 31, 1982.
The 4-year debt amount shall not exceed the aggregate amount of
indebtedness of the taxpayer outstanding on November 16, 1985,
reduced by the 5-year debt amount.
"(vii) Paydowns. - For purposes of applying this subparagraph
to interest expenses attributable to any month, the term
'paydowns' means the excess (if any) of -
"(I) the aggregate amount of indebtedness of the taxpayer
outstanding on November 16, 1985, over
"(II) the lowest amount of indebtedness of the taxpayer
outstanding as of the close of any preceding month beginning
after November 16, 1985 (or, to the extent provided in
regulations under subparagraph (A)(iii), the average amount
of indebtedness outstanding during any such month).
"(C) Coordination of subparagraphs (a) and (b). - In applying
subparagraph (B), there shall first be taken into account
indebtedness to which subparagraph (A) applies.
"(D) Special rules. -
"(i) In the case of the 1st 9 taxable years of the taxpayer
beginning after December 31, 1986, the amendments made by this
section shall not apply to interest expenses paid or accrued by
the taxpayer during the taxable year with respect to an
aggregate amount of indebtedness which does not exceed the
applicable percentage (determined under the following table) of
the indebtedness described in clause (iii) or (iv):
The applicable
"In the case of the: percentage is:
1st taxable year 90
2nd taxable year 80
3rd taxable year 70
4th taxable year 60
5th taxable year 50
6th taxable year 40
7th taxable year 30
8th taxable year 20
9th taxable year 10.
"(ii) The provisions of this subparagraph shall apply in lieu
of the provisions of subparagraphs (A) and (B).
"(iii) Indebtedness outstanding on may 29, 1985. -
Indebtedness is described in this clause if it is indebtedness
(which was outstanding on May 29, 1985) of a corporation
incorporated on June 13, 1917, which has its principal place of
business in Bartlesville, Oklahoma.
"(iv) Indebtedness outstanding on may 29, 1985. -
Indebtedness is described in this clause if it is indebtedness
(which was outstanding on May 29, 1985) of a member of an
affiliated group (as defined in section 1504(a) [of the
Internal Revenue Code of 1986]), the common parent of which was
incorporated on August 26, 1926, and has its principal place of
business in Harrison, New York.
"(E) Treatment of affiliated group. - For purposes of this
paragraph, all members of the same affiliated group of
corporations (as defined in section 864(e)(5)(A) of the Internal
Revenue Code of 1986, as added by this section) shall be treated
as 1 taxpayer whether or not such members filed a consolidated
return.
"(F) Election to have paragraph not apply. - A taxpayer may
elect (at such time and in such manner as the Secretary of the
Treasury or his delegate may prescribe) to have this paragraph
not apply. In the case of members of the same affiliated group
(as so defined), such an election may be made only if each member
consents to such election.
"(3) Special rule. -
"(A) In general. - In the case of a qualified corporation, in
lieu of applying paragraph (2), the amendments made by this
section shall not apply to interest expenses allocable to any
indebtedness to the extent such indebtedness does not exceed
$500,000,000 if -
"(i) the indebtedness was incurred to develop or improve
existing property that is owned by the taxpayer on November 16,
1985, and was acquired with the intent to develop or improve
the property,
"(ii) the loan agreement with respect to the indebtedness
provides that the funds are to be utilized for purposes of
developing or improving the above property, and
"(iii) the debt to equity ratio of the companies that join in
the filing of the consolidated return is less than 15 percent.
"(B) Qualified corporation. - For purposes of subparagraph (A),
the term 'qualified corporation' means a corporation -
"(i) which was incorporated in Delaware on June 29, 1964,
"(ii) the principal subsidiary of which is a resident of
Arkansas, and
"(iii) which is a member of an affiliated group the average
daily United States production of oil of which is less than
50,000 barrels and the average daily United States refining of
which is less than 150,000 barrels.
"(4) Special rules for subsidiary. - The amendments made by this
section shall not apply to interest on up to the applicable dollar
amount of indebtedness of a subsidiary incorporated on February 11,
1975, the indebtedness of which on May 6, 1986, included -
"(A) $100,000,000 face amount of 11 3/4 percent notes due in
1990,
"(B) $100,000,000 of 8 3/4 percent notes due in 1989,
"(C) 6 3/4 percent Japanese yen notes due in 1991, and
"(D) 5 3/8 percent Swiss franc bonds due in 1994.
For purposes of this paragraph, the term 'applicable dollar amount'
means $600,000,000 in the case of taxable years beginning in 1987
through 1991, $500,000,000 in the case of the taxable year
beginning in 1992, $400,000,000 in the case of the taxable year
beginning in 1993, $300,000,000 in the case of the taxable year
beginning in 1994, $200,000,000 in the case of the taxable year
beginning in 1995, $100,000,000 in the case of the taxable year
beginning in 1996, and zero in the case of taxable years beginning
after 1996.
"[(5) Repealed. Pub. L. 104-191, title V, Sec. 521(a), Aug. 21,
1996, 110 Stat. 2103.]
"(6) Special rules for allocating general and administrative
expenses. -
"(A) In general. - In the case of an affiliated group of
domestic corporations the common parent of which has its
principal office in New Brunswick, New Jersey, and has a
certificate of organization which was filed with the Secretary of
the State of New Jersey on November 10, 1887, the amendments made
by this section shall not apply to the phase-in percentage of
general and administrative expenses paid or incurred in its 1st 3
taxable years beginning after December 31, 1986.
"(B) Phase-in percentage. - For purposes of subparagraph (A):
"In the case of taxable The phase-in
years beginning in: percentage is:
1987 75
1988 50
1989 25."
--------------------------------------------------------------------
[Section 521(b) of Pub. L. 104-191 provided that:
["(1) In general. - The amendment made by this section [amending
section 1215(c) of Pub. L. 99-514, set out above] shall apply to
taxable years beginning after December 31, 1995.
["(2) Special rule. - In the case of the first taxable year
beginning after December 31, 1995, the pre-effective date portion
of the interest expense of the corporation referred to in such
paragraph (5) of such section 1215(c) [of Pub. L. 99-514] for such
taxable year shall be allocated and apportioned without regard to
such amendment. For purposes of the preceding sentence, the
pre-effective date portion is the amount which bears the same ratio
to the interest expense for such taxable year as the number of days
during such taxable year before the date of the enactment of this
Act [Aug. 21, 1996] bears to 366."]
Amendment by section 1221(a)(2) of Pub. L. 99-514 applicable to
taxable years of foreign corporations beginning after Dec. 31,
1986, except as otherwise provided, see section 1221(g) of Pub. L.
99-514, set out as a note under section 954 of this title.
Section 1223(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 881 and
954 of this title] shall apply to taxable years beginning after
December 31, 1986."
Section 1242(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1986."
Amendment by section 1275(c)(7) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
Amendment by section 1810(c)(2), (3) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 123(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
956 of this title] shall apply to accounts receivable and evidences
of indebtedness transferred after March 1, 1984, in taxable years
ending after such date.
"(2) Transitional rule. - The amendments made by this section
shall not apply to accounts receivable and evidences of
indebtedness acquired after March 1, 1984, and before March 1,
1994, by a Belgian corporation in existence on March 1, 1984, in
any taxable year ending after such date, but only to the extent
that the amount includible in gross income by reason of section 956
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] with
respect to such corporation for all such taxable years is not
reduced by reason of this paragraph by more than the lesser of -
"(A) $15,000,000 or
"(B) the amount of the Belgian corporation's adjusted basis on
March 1, 1984, in stock of a foreign corporation formed to issue
bonds outside the United States to the public."
Amendment by section 127(c) of Pub. L. 98-369 applicable to
interest received after July 18, 1984, with respect to obligations
issued after such date, in taxable years ending after such date,
see section 127(g)(1) of Pub. L. 98-369, set out as a note under
section 871 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective for taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, except that in applying
section 864(c)(4)(B)(iii) of this title with respect to a binding
contract entered into on or before Feb. 24, 1966, activities in the
United States on or before such date in negotiating or carrying out
such contract shall not be taken into account, see section
102(e)(1) of Pub. L. 89-809, set out as a note under section 861 of
this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 1201(d)(4) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, and for nonapplication of amendments by
sections 1211(b)(2) and 1242(a) of Pub. L. 99-514 to the extent
application of such amendments would be contrary to any treaty
obligation of the United States in effect on Oct. 22, 1986, with
provision that for such purposes any amendment by title I of Pub.
L. 100-647 be treated as if it had been included in the provision
of Pub. L. 99-514 to which such amendment relates, see section
1012(aa)(2) to (4) of Pub. L. 100-647, set out as a note under
section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 865, 871, 881, 885, 904,
936, 956 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 865 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART I - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN
INCOME
-HEAD-
Sec. 865. Source rules for personal property sales
-STATUTE-
(a) General rule
Except as otherwise provided in this section, income from the
sale of personal property -
(1) by a United States resident shall be sourced in the United
States, or
(2) by a nonresident shall be sourced outside the United
States.
(b) Exception for inventory property
In the case of income derived from the sale of inventory property
-
(1) this section shall not apply, and
(2) such income shall be sourced under the rules of sections
861(a)(6), 862(a)(6), and 863.
Notwithstanding the preceding sentence, any income from the sale of
any unprocessed timber which is a softwood and was cut from an area
in the United States shall be sourced in the United States and the
rules of sections 862(a)(6) and 863(b) shall not apply to any such
income. For purposes of the preceding sentence, the term
"unprocessed timber" means any log, cant, or similar form of
timber.
(c) Exception for depreciable personal property
(1) In general
Gain (not in excess of the depreciation adjustments) from the
sale of depreciable personal property shall be allocated between
sources in the United States and sources outside the United
States -
(A) by treating the same proportion of such gain as sourced
in the United States as the United States depreciation
adjustments with respect to such property bear to the total
depreciation adjustments, and
(B) by treating the remaining portion of such gain as sourced
outside the United States.
(2) Gain in excess of depreciation
Gain (in excess of the depreciation adjustments) from the sale
of depreciable personal property shall be sourced as if such
property were inventory property.
(3) United States depreciation adjustments
For purposes of this subsection -
(A) In general
The term "United States depreciation adjustments" means the
portion of the depreciation adjustments to the adjusted basis
of the property which are attributable to the depreciation
deductions allowable in computing taxable income from sources
in the United States.
(B) Special rule for certain property
Except in the case of property of a kind described in section
168(g)(4), if, for any taxable year -
(i) such property is used predominantly in the United
States, or
(ii) such property is used predominantly outside the United
States,
all of the depreciation deductions allowable for such year
shall be treated as having been allocated to income from
sources in the United States (or, where clause (ii) applies,
from sources outside the United States).
(4) Other definitions
For purposes of this subsection -
(A) Depreciable personal property
The term "depreciable personal property" means any personal
property if the adjusted basis of such property includes
depreciation adjustments.
(B) Depreciation adjustments
The term "depreciation adjustments" means adjustments
reflected in the adjusted basis of any property on account of
depreciation deductions (whether allowed with respect to such
property or other property and whether allowed to the taxpayer
or to any other person).
(C) Depreciation deductions
The term "depreciation deductions" means any deductions for
depreciation or amortization or any other deduction allowable
under any provision of this chapter which treats an otherwise
capital expenditure as a deductible expense.
(d) Exception for intangibles
(1) In general
In the case of any sale of an intangible -
(A) this section shall apply only to the extent the payments
in consideration of such sale are not contingent on the
productivity, use, or disposition of the intangible, and
(B) to the extent such payments are so contingent, the source
of such payments shall be determined under this part in the
same manner as if such payments were royalties.
(2) Intangible
For purposes of paragraph (1), the term "intangible" means any
patent, copyright, secret process or formula, goodwill,
trademark, trade brand, franchise, or other like property.
(3) Special rule in the case of goodwill
To the extent this section applies to the sale of goodwill,
payments in consideration of such sale shall be treated as from
sources in the country in which such goodwill was generated.
(4) Coordination with subsection (c)
(A) Gain not in excess of depreciation adjustments sourced
under subsection (c)
Notwithstanding paragraph (1), any gain from the sale of an
intangible shall be sourced under subsection (c) to the extent
such gain does not exceed the depreciation adjustments with
respect to such intangible.
(B) Subsection (c)(2) not to apply to intangibles
Paragraph (2) of subsection (c) shall not apply to any gain
from the sale of an intangible.
(e) Special rules for sales through offices or fixed places of
business
(1) Sales by residents
(A) In general
In the case of income not sourced under subsection (b), (c),
(d)(1)(B) or (3), or (f), if a United States resident maintains
an office or other fixed place of business in a foreign
country, income from sales of personal property attributable to
such office or other fixed place of business shall be sourced
outside the United States.
(B) Tax must be imposed
Subparagraph (A) shall not apply unless an income tax equal
to at least 10 percent of the income from the sale is actually
paid to a foreign country with respect to such income.
(2) Sales by nonresidents
(A) In general
Notwithstanding any other provisions of this part, if a
nonresident maintains an office or other fixed place of
business in the United States, income from any sale of personal
property (including inventory property) attributable to such
office or other fixed place of business shall be sourced in the
United States. The preceding sentence shall not apply for
purposes of section 971 (defining export trade corporation).
(B) Exception
Subparagraph (A) shall not apply to any sale of inventory
property which is sold for use, disposition, or consumption
outside the United States if an office or other fixed place of
business of the taxpayer in a foreign country materially
participated in the sale.
(3) Sales attributable to an office or other fixed place of
business
The principles of section 864(c)(5) shall apply in determining
whether a taxpayer has an office or other fixed place of business
and whether a sale is attributable to such an office or other
fixed place of business.
(f) Stock of affiliates
If -
(1) a United States resident sells stock in an affiliate which
is a foreign corporation,
(2) such sale occurs in a foreign country in which such
affiliate is engaged in the active conduct of a trade or
business, and
(3) more than 50 percent of the gross income of such affiliate
for the 3-year period ending with the close of such affiliate's
taxable year immediately preceding the year in which the sale
occurred was derived from the active conduct of a trade or
business in such foreign country,
any gain from such sale shall be sourced outside the United States.
For purposes of paragraphs (2) and (3), the United States resident
may elect to treat an affiliate and all other corporations which
are wholly owned (directly or indirectly) by the affiliate as one
corporation.
(g) United States resident; nonresident
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection -
(A) United States resident
The term "United States resident" means -
(i) any individual who -
(I) is a United States citizen or a resident alien and
does not have a tax home (as defined in section 911(d)(3))
in a foreign country, or
(II) is a nonresident alien and has a tax home (as so
defined) in the United States, and
(ii) any corporation, trust, or estate which is a United
States person (as defined in section 7701(a)(30)).
(B) Nonresident
The term "nonresident" means any person other than a United
States resident.
(2) Special rules for United States citizens and resident aliens
For purposes of this section, a United States citizen or
resident alien shall not be treated as a nonresident with respect
to any sale of personal property unless an income tax equal to at
least 10 percent of the gain derived from such sale is actually
paid to a foreign country with respect to that gain.
(3) Special rule for certain stock sales by residents of Puerto
Rico
Paragraph (2) shall not apply to the sale by an individual who
was a bona fide resident of Puerto Rico during the entire taxable
year of stock in a corporation if -
(A) such corporation is engaged in the active conduct of a
trade or business in Puerto Rico, and
(B) more than 50 percent of its gross income for the 3-year
period ending with the close of such corporation's taxable year
immediately preceding the year in which such sale occurred was
derived from the active conduct of a trade or business in
Puerto Rico.
For purposes of the preceding sentence, the taxpayer may elect to
treat a corporation and all other corporations which are wholly
owned (directly or indirectly) by such corporation as one
corporation.
(h) Treatment of gains from sale of certain stock or intangibles
and from certain liquidations
(1) In general
In the case of gain to which this subsection applies -
(A) such gain shall be sourced outside the United States, but
(B) subsections (a), (b), and (c) of section 904 and sections
902, 907, and 960 shall be applied separately with respect to
such gain.
(2) Gain to which subsection applies
This subsection shall apply to -
(A) Gain from sale of certain stock or intangibles
Any gain -
(i) which is from the sale of stock in a foreign
corporation or an intangible (as defined in subsection
(d)(2)) and which would otherwise be sourced in the United
States under this section,
(ii) which, under a treaty obligation of the United States
(applied without regard to this section), would be sourced
outside the United States, and
(iii) with respect to which the taxpayer chooses the
benefits of this subsection.
(B) Gain from liquidation in possession
Any gain which is derived from the receipt of any
distribution in liquidation of a corporation -
(i) which is organized in a possession of the United
States, and
(ii) more than 50 percent of the gross income of which
during the 3-taxable year period ending with the close of the
taxable year immediately preceding the taxable year in which
the distribution is received is from the active conduct of a
trade or business in such possession.
(i) Other definitions
For purposes of this section -
(1) Inventory property
The term "inventory property" means personal property described
in paragraph (1) of section 1221(a).
(2) Sale includes exchange
The term "sale" includes an exchange or any other disposition.
(3) Treatment of possessions
Any possession of the United States shall be treated as a
foreign country.
(4) Affiliate
The term "affiliate" means a member of the same affiliated
group (within the meaning of section 1504(a) without regard to
section 1504(b)).
(5) Treatment of partnerships
In the case of a partnership, except as provided in
regulations, this section shall be applied at the partner level.
(j) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purpose of this section,
including regulations -
(1) relating to the treatment of losses from sales of personal
property,
(2) applying the rules of this section to income derived from
trading in futures contracts, forward contracts, options
contracts, and other instruments, and
(3) providing that, subject to such conditions (which may
include provisions comparable to section 877) as may be provided
in such regulations, subsections (e)(1)(B) and (g)(2) shall not
apply for purposes of sections 931, 933, and 936.
(k) Cross references
(1) For provisions relating to the characterization as
dividends for source purposes of gains from the sale of stock
in certain foreign corporations, see section 1248.
(2) For sourcing of income from certain foreign currency
transactions, see section 988.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1211(a), Oct. 22, 1986, 100
Stat. 2533; amended Pub. L. 100-647, title I, Sec. 1012(d)(1)-(6),
(8), (9), (11), (12), Nov. 10, 1988, 102 Stat. 3497-3499; Pub. L.
101-508, title XI, Sec. 11813(b)(18), Nov. 5, 1990, 104 Stat.
1388-555; Pub. L. 103-66, title XIII, Sec. 13239(c), Aug. 10, 1993,
107 Stat. 509; Pub. L. 104-188, title I, Sec. 1704(f)(4)(A), Aug.
20, 1996, 110 Stat. 1880; Pub. L. 106-170, title V, Sec.
532(c)(1)(E), Dec. 17, 1999, 113 Stat. 1930.)
-MISC1-
AMENDMENTS
1999 - Subsec. (i)(1). Pub. L. 106-170 substituted "section
1221(a)" for "section 1221".
1996 - Subsec. (b)(2). Pub. L. 104-188 substituted "863" for
"863(b)".
1993 - Subsec. (b). Pub. L. 103-66 inserted at end
"Notwithstanding the preceding sentence, any income from the sale
of any unprocessed timber which is a softwood and was cut from an
area in the United States shall be sourced in the United States and
the rules of sections 862(a)(6) and 863(b) shall not apply to any
such income. For purposes of the preceding sentence, the term
'unprocessed timber' means any log, cant, or similar form of
timber."
1990 - Subsec. (c)(3)(B). Pub. L. 101-508 substituted "section
168(g)(4)" for "section 48(a)(2)(B)".
1988 - Subsec. (d)(2). Pub. L. 100-647, Sec. 1012(d)(12),
inserted "franchise," after "trade brand,".
Subsec. (d)(4). Pub. L. 100-647, Sec. 1012(d)(1), added par. (4).
Subsec. (e)(1)(A). Pub. L. 100-647, Sec. 1012(d)(2), (9),
substituted "(d)(1)(B) or (3)" for "(d)" and "in a foreign country"
for first reference to "outside the United States".
Subsec. (e)(2)(B). Pub. L. 100-647, Sec. 1012(d)(5), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "Subparagraph (A) shall not apply to -
"(i) any sale of inventory property which is sold for use,
disposition, or consumption outside the United States if an
office or other fixed place of business of the taxpayer outside
the United States materially participated in the sale, or
"(ii) any amount included in gross income under section
951(a)(1)(A)."
Subsec. (f). Pub. L. 100-647, Sec. 1012(d)(4), amended subsec.
(f) generally. Prior to amendment, subsec. (f) read as follows: "If
-
"(1) a United States resident sells stock in an affiliate which
is a foreign corporation,
"(2) such affiliate is engaged in the active conduct of a trade
or business, and
"(3) such sale occurs in the foreign country in which the
affiliate derived more than 50 percent of its gross income for
the 3-year period ending with the close of the affiliate's
taxable year immediately preceding the year during which such
sale occurred,
any gain from such sale shall be sourced outside the United
States."
Subsec. (g)(1)(A)(i). Pub. L. 100-647, Sec. 1012(d)(11), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
"any individual who has a tax home (as defined in section
911(d)(3)) in the United States, and".
Subsec. (g)(1)(A)(ii). Pub. L. 100-647, Sec. 1012(d)(3)(A),
struck out "partnership," after "corporation,".
Subsec. (g)(3). Pub. L. 100-647, Sec. 1012(d)(6)(A), added par.
(3).
Subsec. (h). Pub. L. 100-647, Sec. 1012(d)(8), added subsec. (h)
and redesignated former subsec. (h) as (i).
Pub. L. 100-647, Sec. 1012(d)(3)(B), added par. (5) to subsec.
(h) prior to redesignation as subsec. (i).
Subsec. (i). Pub. L. 100-647, Sec. 1012(d)(8), redesignated
former subsec. (h) as (i). Former subsec. (i) redesignated (j).
Pub. L. 100-647, Sec. 1012(d)(6)(B), added par. (3) to subsec.
(i) prior to redesignation as subsec. (j).
Subsec. (i)(5). Pub. L. 100-647, Sec. 1012(d)(3)(B), added par.
(5) to subsec. (h) prior to redesignation as subsec. (i).
Subsec. (j). Pub. L. 100-647, Sec. 1012(d)(8), redesignated
former subsec. (i) as (j). Former subsec. (j) redesignated (k).
Subsec. (j)(3). Pub. L. 100-647, Sec. 1012(d)(6)(B), added par.
(3) to subsec. (i) prior to redesignation as subsec. (j).
Subsec. (k). Pub. L. 100-647, Sec. 1012(d)(8), redesignated
former subsec. (j) as (k).
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1704(f)(4)(B) of Pub. L. 104-188 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
take effect as if included in the amendments made by section 1211
of the Tax Reform Act of 1986 [Pub. L. 99-514]."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13239(e) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 927, 954,
and 993 of this title] shall apply to sales, exchanges, or other
dispositions after the date of the enactment of this Act [Aug. 10,
1993]."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Dec. 31, 1990, but not applicable to any transition
property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were
previously taken into account under section 46(d) of this title,
and any property described in section 46(b)(2)(C) of this title, as
such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 29 of this
title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1012(d)(5) of Pub. L. 100-647 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1987.
Amendment by section 1012(d)(1)-(4), (6), (8), (9), (11), (12) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L.
99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE
Section 1211(c) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this section, amending
sections 861 to 864, 871, 881, and 904 of this title, and enacting
provisions set out below] shall apply to taxable years beginning
after December 31, 1986.
"(2) Special rule for foreign persons. - In the case of any
foreign person other than any controlled foreign corporations
(within the meaning of section 957(a) of the Internal Revenue Code
of 1954 [now 1986]), the amendments made by this section shall
apply to transactions entered into after March 18, 1986."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1211(a) of Pub. L.
99-514 (enacting this section) to the extent application of such
amendment would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
STUDY OF SOURCE RULES FOR SALES OF INVENTORY PROPERTY
Section 1211(d) of Pub. L. 99-514 directed Secretary of the
Treasury or his delegate to conduct a study of source rules for
sales of inventory property and, not later than Sept. 30, 1987 (due
date extended to Jan. 1, 1992, by Pub. L. 101-508, title XI, Sec.
11831(b), Nov. 5, 1990, 104 Stat. 1388-559), to submit to Committee
on Ways and Means of House of Representatives and Committee on
Finance of Senate a report of such study (together with
recommendations he deemed advisable).
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 861, 862, 863, 954 of
this title.
-End-
-CITE-
26 USC PART II - NONRESIDENT ALIENS AND FOREIGN
CORPORATIONS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
-HEAD-
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
-MISC1-
Subpart
A. Nonresident alien individuals.
B. Foreign corporations.
C. Tax on gross transportation income.
D. Miscellaneous provisions.
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Sec. 1212(b)(2), Oct. 22, 1986,
100 Stat. 2538, added item for subpart C and redesignated item for
former subpart C as D.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in section 864 of this title.
-End-
-CITE-
26 USC Subpart A - Nonresident Alien Individuals 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
SUBPART A - NONRESIDENT ALIEN INDIVIDUALS
-MISC1-
Sec.
871. Tax on nonresident alien individuals.
872. Gross income.
873. Deductions.
874. Allowance of deductions and credits.
875. Partnerships; beneficiaries of estates and trusts.
876. Alien residents of Puerto Rico, Guam, American Samoa,
or the Northern Mariana Islands.
877. Expatriation to avoid tax.
878. Foreign educational, charitable, and certain other
exempt organizations.
879. Tax treatment of certain community income in the case
of nonresident alien individuals.
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Sec. 1272(d)(13), Oct. 22,
1986, 100 Stat. 2595, inserted ", Guam, American Samoa, or the
Northern Mariana Islands" in item 876.
1984 - Pub. L. 98-369, div. A, title I, Sec. 139(b)(2), July 18,
1984, 98 Stat. 677, substituted "nonresident alien individuals" for
"a resident or citizen of the United States who is married to a
nonresident alien individual" in item 879.
1976 - Pub. L. 94-455, title X, Sec. 1012(b)(3)(A), Oct. 4, 1976,
90 Stat. 1614, added item 879.
1966 - Pub. L. 89-809, title I, Sec. 103(e)(2), (f)(2), Nov. 13,
1966, 80 Stat. 1551, 1552, inserted "; beneficiaries of estates and
trusts" in item 875, added item 877, and redesignated former item
877 as 878.
-End-
-CITE-
26 USC Sec. 871 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 871. Tax on nonresident alien individuals
-STATUTE-
(a) Income not connected with United States business - 30 percent
tax
(1) Income other than capital gains
Except as provided in subsection (h), there is hereby imposed
for each taxable year a tax of 30 percent of the amount received
from sources within the United States by a nonresident alien
individual as -
(A) interest (other than original issue discount as defined
in section 1273), dividends, rents, salaries, wages, premiums,
annuities, compensations, remunerations, emoluments, and other
fixed or determinable annual or periodical gains, profits, and
income,
(B) gains described in section 631(b) or (c), and gains on
transfers described in section 1235 made on or before October
4, 1966,
(C) in the case of -
(i) a sale or exchange of an original issue discount
obligation, the amount of the original issue discount
accruing while such obligation was held by the nonresident
alien individual (to the extent such discount was not
theretofore taken into account under clause (ii)), and
(ii) a payment on an original issue discount obligation, an
amount equal to the original issue discount accruing while
such obligation was held by the nonresident alien individual
(except that such original issue discount shall be taken into
account under this clause only to the extent such discount
was not theretofore taken into account under this clause and
only to the extent that the tax thereon does not exceed the
payment less the tax imposed by subparagraph (A) thereon),
and
(D) gains from the sale or exchange after October 4, 1966, of
patents, copyrights, secret processes and formulas, good will,
trademarks, trade brands, franchises, and other like property,
or of any interest in any such property, to the extent such
gains are from payments which are contingent on the
productivity, use, or disposition of the property or interest
sold or exchanged,
but only to the extent the amount so received is not effectively
connected with the conduct of a trade or business within the
United States.
(2) Capital gains of aliens present in the United States 183 days
or more
In the case of a nonresident alien individual present in the
United States for a period or periods aggregating 183 days or
more during the taxable year, there is hereby imposed for such
year a tax of 30 percent of the amount by which his gains,
derived from sources within the United States, from the sale or
exchange at any time during such year of capital assets exceed
his losses, allocable to sources within the United States, from
the sale or exchange at any time during such year of capital
assets. For purposes of this paragraph, gains and losses shall be
taken into account only if, and to the extent that, they would be
recognized and taken into account if such gains and losses were
effectively connected with the conduct of a trade or business
within the United States, except that such gains and losses shall
be determined without regard to section 1202 and such losses
shall be determined without the benefits of the capital loss
carryover provided in section 1212. Any gain or loss which is
taken into account in determining the tax under paragraph (1) or
subsection (b) shall not be taken into account in determining the
tax under this paragraph. For purposes of the 183-day requirement
of this paragraph, a nonresident alien individual not engaged in
trade or business within the United States who has not
established a taxable year for any prior period shall be treated
as having a taxable year which is the calendar year.
(3) Taxation of social security benefits
For purposes of this section and section 1441 -
(A) 85 percent of any social security benefit (as defined in
section 86(d)) shall be included in gross income
(notwithstanding section 207 of the Social Security Act), and
(B) section 86 shall not apply.
For treatment of certain citizens of possessions of the
United States, see section 932(c).(!1)
(b) Income connected with United States business - graduated rate
of tax
(1) Imposition of tax
A nonresident alien individual engaged in trade or business
within the United States during the taxable year shall be taxable
as provided in section 1 or 55 on his taxable income which is
effectively connected with the conduct of a trade or business
within the United States.
(2) Determination of taxable income
In determining taxable income for purposes of paragraph (1),
gross income includes only gross income which is effectively
connected with the conduct of a trade or business within the
United States.
(c) Participants in certain exchange or training programs
For purposes of this section, a nonresident alien individual who
(without regard to this subsection) is not engaged in trade or
business within the United States and who is temporarily present in
the United States as a nonimmigrant under subparagraph (F), (J),
(M), or (Q) of section 101(a)(15) of the Immigration and
Nationality Act, as amended (8 U.S.C. 1101(a)(15)(F), (J), (M), or
(Q)), shall be treated as a nonresident alien individual engaged in
trade or business within the United States, and any income
described in the second sentence of section 1441(b) which is
received by such individual shall, to the extent derived from
sources within the United States, be treated as effectively
connected with the conduct of a trade or business within the United
States.
(d) Election to treat real property income as income connected with
United States business
(1) In general
A nonresident alien individual who during the taxable year
derives any income -
(A) from real property held for the production of income and
located in the United States, or from any interest in such real
property, including (i) gains from the sale or exchange of such
real property or an interest therein, (ii) rents or royalties
from mines, wells, or other natural deposits, and (iii) gains
described in section 631(b) or (c), and
(B) which, but for this subsection, would not be treated as
income which is effectively connected with the conduct of a
trade or business within the United States,
may elect for such taxable year to treat all such income as
income which is effectively connected with the conduct of a trade
or business within the United States. In such case, such income
shall be taxable as provided in subsection (b)(1) whether or not
such individual is engaged in trade or business within the United
States during the taxable year. An election under this paragraph
for any taxable year shall remain in effect for all subsequent
taxable years, except that it may be revoked with the consent of
the Secretary with respect to any taxable year.
(2) Election after revocation
If an election has been made under paragraph (1) and such
election has been revoked, a new election may not be made under
such paragraph for any taxable year before the 5th taxable year
which begins after the first taxable year for which such
revocation is effective, unless the Secretary consents to such
new election.
(3) Form and time of election and revocation
An election under paragraph (1), and any revocation of such an
election, may be made only in such manner and at such time as the
Secretary may by regulations prescribe.
[(e) Repealed. Pub. L. 99-514, title XII, Sec. 1211(b)(5), Oct. 22,
1986, 100 Stat. 2536]
(f) Certain annuities received under qualified plans
(1) In general
For purposes of this section, gross income does not include any
amount received as an annuity under a qualified annuity plan
described in section 403(a)(1), or from a qualified trust
described in section 401(a) which is exempt from tax under
section 501(a), if -
(A) all of the personal services by reason of which the
annuity is payable were either -
(i) personal services performed outside the United States
by an individual who, at the time of performance of such
personal services, was a nonresident alien, or
(ii) personal services described in section 864(b)(1)
performed within the United States by such individual, and
(B) at the time the first amount is paid as an annuity under
the annuity plan or by the trust, 90 percent or more of the
employees for whom contributions or benefits are provided under
such annuity plan, or under the plan or plans of which the
trust is a part, are citizens or residents of the United
States.
(2) Exclusion
Income received during the taxable year which would be excluded
from gross income under this subsection but for the requirement
of paragraph (1)(B) shall not be included in gross income if -
(A) the recipient's country of residence grants a
substantially equivalent exclusion to residents and citizens of
the United States; or
(B) the recipient's country of residence is a beneficiary
developing country under title V of the Trade Act of 1974 (19
U.S.C. 2461 et seq.).
(g) Special rules for original issue discount
For purposes of this section and section 881 -
(1) Original issue discount obligation
(A) In general
Except as provided in subparagraph (B), the term "original
issue discount obligation" means any bond or other evidence of
indebtedness having original issue discount (within the meaning
of section 1273).
(B) Exceptions
The term "original issue discount obligation" shall not
include -
(i) Certain short-term obligations
Any obligation payable 183 days or less from the date of
original issue (without regard to the period held by the
taxpayer).
(ii) Tax-exempt obligations
Any obligation the interest on which is exempt from tax
under section 103 or under any other provision of law without
regard to the identity of the holder.
(2) Determination of portion of original issue discount accruing
during any period
The determination of the amount of the original issue discount
which accrues during any period shall be made under the rules of
section 1272 (or the corresponding provisions of prior law)
without regard to any exception for short-term obligations.
(3) Source of original issue discount
Except to the extent provided in regulations prescribed by the
Secretary, the determination of whether any amount described in
subsection (a)(1)(C) is from sources within the United States
shall be made at the time of the payment (or sale or exchange) as
if such payment (or sale or exchange) involved the payment of
interest.
(4) Stripped bonds
The provisions of section 1286 (relating to the treatment of
stripped bonds and stripped coupons as obligations with original
issue discount) shall apply for purposes of this section.
(h) Repeal of tax on interest of nonresident alien individuals
received from certain portfolio debt investments
(1) In general
In the case of any portfolio interest received by a nonresident
individual from sources within the United States, no tax shall be
imposed under paragraph (1)(A) or (1)(C) of subsection (a).
(2) Portfolio interest
For purposes of this subsection, the term "portfolio interest"
means any interest (including original issue discount) which
would be subject to tax under subsection (a) but for this
subsection and which is described in any of the following
subparagraphs:
(A) Certain obligations which are not registered
Interest which is paid on any obligation which -
(i) is not in registered form, and
(ii) is described in section 163(f)(2)(B).
(B) Certain registered obligations
Interest which is paid on an obligation -
(i) which is in registered form, and
(ii) with respect to which the United States person who
would otherwise be required to deduct and withhold tax from
such interest under section 1441(a) receives a statement
(which meets the requirements of paragraph (5)) that the
beneficial owner of the obligation is not a United States
person.
(3) Portfolio interest not to include interest received by
10-percent shareholders
For purposes of this subsection -
(A) In general
The term "portfolio interest" shall not include any interest
described in subparagraph (A) or (B) of paragraph (2) which is
received by a 10-percent shareholder.
(B) 10-Percent shareholder
The term "10-percent shareholder" means -
(i) in the case of an obligation issued by a corporation,
any person who owns 10 percent or more of the total combined
voting power of all classes of stock of such corporation
entitled to vote, or
(ii) in the case of an obligation issued by a partnership,
any person who owns 10 percent or more of the capital or
profits interest in such partnership.
(C) Attribution rules
For purposes of determining ownership of stock under
subparagraph (B)(i) the rules of section 318(a) shall apply,
except that -
(i) section 318(a)(2)(C) shall be applied without regard to
the 50-percent limitation therein,
(ii) section 318(a)(3)(C) shall be applied -
(I) without regard to the 50-percent limitation therein;
and
(II) in any case where such section would not apply but
for subclause (I), by considering a corporation as owning
the stock (other than stock in such corporation) which is
owned by or for any shareholder of such corporation in that
proportion which the value of the stock which such
shareholder owns in such corporation bears to the value of
all stock in such corporation, and
(iii) any stock which a person is treated as owning after
application of section 318(a)(4) shall not, for purposes of
applying paragraphs (2) and (3) of section 318(a), be treated
as actually owned by such person.
Under regulations prescribed by the Secretary, rules similar to
the rules of the preceding sentence shall be applied in
determining the ownership of the capital or profits interest in
a partnership for purposes of subparagraph (B)(ii).
(4) Portfolio interest not to include certain contingent interest
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the term
"portfolio interest" shall not include -
(i) any interest if the amount of such interest is
determined by reference to -
(I) any receipts, sales or other cash flow of the debtor
or a related person,
(II) any income or profits of the debtor or a related
person,
(III) any change in value of any property of the debtor
or a related person, or
(IV) any dividend, partnership distributions, or similar
payments made by the debtor or a related person, or
(ii) any other type of contingent interest that is
identified by the Secretary by regulation, where a denial of
the portfolio interest exemption is necessary or appropriate
to prevent avoidance of Federal income tax.
(B) Related person
The term "related person" means any person who is related to
the debtor within the meaning of section 267(b) or 707(b)(1),
or who is a party to any arrangement undertaken for a purpose
of avoiding the application of this paragraph.
(C) Exceptions
Subparagraph (A)(i) shall not apply to -
(i) any amount of interest solely by reason of the fact
that the timing of any interest or principal payment is
subject to a contingency,
(ii) any amount of interest solely by reason of the fact
that the interest is paid with respect to nonrecourse or
limited recourse indebtedness,
(iii) any amount of interest all or substantially all of
which is determined by reference to any other amount of
interest not described in subparagraph (A) (or by reference
to the principal amount of indebtedness on which such other
interest is paid),
(iv) any amount of interest solely by reason of the fact
that the debtor or a related person enters into a hedging
transaction to manage the risk of interest rate or currency
fluctuations with respect to such interest,
(v) any amount of interest determined by reference to -
(I) changes in the value of property (including stock)
that is actively traded (within the meaning of section
1092(d)) other than property described in section 897(c)(1)
or (g),
(II) the yield on property described in subclause (I),
other than a debt instrument that pays interest described
in subparagraph (A), or stock or other property that
represents a beneficial interest in the debtor or a related
person, or
(III) changes in any index of the value of property
described in subclause (I) or of the yield on property
described in subclause (II), and
(vi) any other type of interest identified by the Secretary
by regulation.
(D) Exception for certain existing indebtedness
Subparagraph (A) shall not apply to any interest paid or
accrued with respect to any indebtedness with a fixed term -
(i) which was issued on or before April 7, 1993, or
(ii) which was issued after such date pursuant to a written
binding contract in effect on such date and at all times
thereafter before such indebtedness was issued.
(5) Certain statements
A statement with respect to any obligation meets the
requirements of this paragraph if such statement is made by -
(A) the beneficial owner of such obligation, or
(B) a securities clearing organization, a bank, or other
financial institution that holds customers' securities in the
ordinary course of its trade or business.
The preceding sentence shall not apply to any statement with
respect to payment of interest on any obligation by any person
if, at least one month before such payment, the Secretary has
published a determination that any statement from such person (or
any class including such person) does not meet the requirements
of this paragraph.
(6) Secretary may provide subsection not to apply in cases of
inadequate information exchange
(A) In general
If the Secretary determines that the exchange of information
between the United States and a foreign country is inadequate
to prevent evasion of the United States income tax by United
States persons, the Secretary may provide in writing (and
publish a statement) that the provisions of this subsection
shall not apply to payments of interest to any person within
such foreign country (or payments addressed to, or for the
account of, persons within such foreign country) during the
period -
(i) beginning on the date specified by the Secretary, and
(ii) ending on the date that the Secretary determines that
the exchange of information between the United States and the
foreign country is adequate to prevent the evasion of United
States income tax by United States persons.
(B) Exception for certain obligations
Subparagraph (A) shall not apply to the payment of interest
on any obligation which is issued on or before the date of the
publication of the Secretary's determination under such
subparagraph.
(7) Registered form
For purposes of this subsection, the term "registered form" has
the same meaning given such term by section 163(f).
(i) Tax not to apply to certain interest and dividends
(1) In general
No tax shall be imposed under paragraph (1)(A) or (1)(C) of
subsection (a) on any amount described in paragraph (2).
(2) Amounts to which paragraph (1) applies
The amounts described in this paragraph are as follows:
(A) Interest on deposits, if such interest is not effectively
connected with the conduct of a trade or business within the
United States.
(B) A percentage of any dividend paid by a domestic
corporation meeting the 80-percent foreign business
requirements of section 861(c)(1) equal to the percentage
determined for purposes of section 861(c)(2)(A).
(C) Income derived by a foreign central bank of issue from
bankers' acceptances.
(3) Deposits
For purposes of paragraph (2), the term "deposits" means
amounts which are -
(A) deposits with persons carrying on the banking business,
(B) deposits or withdrawable accounts with savings
institutions chartered and supervised as savings and loan or
similar associations under Federal or State law, but only to
the extent that amounts paid or credited on such deposits or
accounts are deductible under section 591 (determined without
regard to sections 265 and 291) in computing the taxable income
of such institutions, and
(C) amounts held by an insurance company under an agreement
to pay interest thereon.
(j) Exemption for certain gambling winnings
No tax shall be imposed under paragraph (1)(A) of subsection (a)
on the proceeds from a wager placed in any of the following games:
blackjack, baccarat, craps, roulette, or big-6 wheel. The preceding
sentence shall not apply in any case where the Secretary determines
by regulation that the collection of the tax is administratively
feasible.
(k) Cross references
(1) For tax treatment of certain amounts distributed by the
United States to nonresident alien individuals, see section
402(e)(2).
(2) For taxation of nonresident alien individuals who are
expatriate United States citizens, see section 877.
(3) For doubling of tax on citizens of certain foreign
countries, see section 891.
(4) For adjustment of tax in case of nationals or residents
of certain foreign countries, see section 896.
(5) For withholding of tax at source on nonresident alien
individuals, see section 1441.
(6) For election to treat married nonresident alien
individual as resident of United States in certain cases, see
subsections (g) and (h) of section 6013.
(7) For special tax treatment of gain or loss from the
disposition by a nonresident alien individual of a United
States real property interest, see section 897.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 278; Pub. L. 85-866, title I,
Secs. 40(a), 41(a), Sept. 2, 1958, 72 Stat. 1638, 1639; Pub. L.
86-437, Sec. 2(b), Apr. 22, 1960, 74 Stat. 79; Pub. L. 87-256, Sec.
110(b), Sept. 21, 1961, 75 Stat. 535; Pub. L. 88-272, title I, Sec.
113(b), title II, Sec. 201(d)(12), Feb. 26, 1964, 78 Stat. 24, 32;
Pub. L. 89-809, title I, Sec. 103(a)(1), Nov. 13, 1966, 80 Stat.
1547; Pub. L. 92-178, title III, Sec. 313(a), (b), Dec. 10, 1971,
85 Stat. 526, 527; Pub. L. 93-406, title II, Sec. 2005(c)(8), Sept.
2, 1974, 88 Stat. 992; Pub. L. 94-455, title X, Sec. 1012(a)(2),
title XIX, Secs. 1901(b)(3)(I), 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1613, 1793, 1834; Pub. L. 95-600, title IV, Secs. 401(b)(3),
421(e)(4), Nov. 6, 1978, 92 Stat. 2867, 2876; Pub. L. 96-222, title
I, Sec. 104(a)(4)(H)(v), Apr. 1, 1980, 94 Stat. 217; Pub. L.
96-499, title XI, Sec. 1122(c)(1), Dec. 5, 1980, 94 Stat. 2687;
Pub. L. 96-605, title II, Sec. 227(a), Dec. 28, 1980, 94 Stat.
3530; Pub. L. 97-34, title VII, Sec. 725(c)(1), Aug. 13, 1981, 95
Stat. 346; Pub. L. 98-21, title I, Sec. 121(c)(1), title III, Sec.
335(b)(2)(B), Apr. 20, 1983, 97 Stat. 82, 130; Pub. L. 98-369, div.
A, title I, Secs. 42(a)(9), 127(a), 128(a), title IV, Sec.
412(b)(1), July 18, 1984, 98 Stat. 557, 648, 653, 792; Pub. L.
99-272, title XII, Sec. 12103(b), Apr. 7, 1986, 100 Stat. 285; Pub.
L. 99-514, title III, Sec. 301(b)(9), title XII, Secs. 1211(b)(4),
(5), 1214(c)(1), title XVIII, Sec. 1810(d)(1)(A), (2), (3)(A), (B),
(e)(2)(A), Oct. 22, 1986, 100 Stat. 2217, 2536, 2542, 2825, 2826;
Pub. L. 100-647, title I, Sec. 1001(d)(2)(B), title VI, Sec.
6134(a)(1), Nov. 10, 1988, 102 Stat. 3350, 3721; Pub. L. 102-318,
title V, Sec. 521(b)(28)-(30), July 3, 1992, 106 Stat. 312; Pub. L.
103-66, title XIII, Secs. 13113(d)(5), 13237(a)(1), (c)(1), Aug.
10, 1993, 107 Stat. 430, 506, 508; Pub. L. 103-296, title III, Sec.
320(a)(1)(A), Aug. 15, 1994, 108 Stat. 1535; Pub. L. 103-465, title
VII, Sec. 733(a), Dec. 8, 1994, 108 Stat. 5006; Pub. L. 104-188,
title I, Secs. 1401(b)(10), 1954(b)(1), Aug. 20, 1996, 110 Stat.
1789, 1928; Pub. L. 105-206, title VI, Sec. 6023(10), July 22,
1998, 112 Stat. 825; Pub. L. 106-170, title V, Sec. 532(b)(2), Dec.
17, 1999, 113 Stat. 1930; Pub. L. 106-554, Sec. 1(a)(7) [title III,
Sec. 319(11)], Dec. 21, 2000, 114 Stat. 2763, 2763A-646.)
-REFTEXT-
REFERENCES IN TEXT
Section 207 of the Social Security Act, referred to in subsec.
(a)(3)(A), is classified to section 407 of Title 42, The Public
Health and Welfare.
Section 932(c), referred to in subsec. (a)(3), was repealed and a
new section 932(c) of this title, which does not relate to taxation
of social security benefits, was enacted by Pub. L. 99-514, title
XII, Secs. 1272(d)(1), 1274(a), Oct. 22, 1986, 100 Stat. 2594,
2596.
The Trade Act of 1974, referred to in subsec. (f)(2)(B), is Pub.
L. 93-618, Jan. 3, 1975, 88 Stat. 1978, as amended. Title V of the
Trade Act of 1974 is classified generally to subchapter V (Sec.
2461 et seq.) of chapter 12 of Title 19, Customs Duties. For
complete classification of this Act to the Code, see section 2101
of Title 19 and Tables.
-MISC1-
AMENDMENTS
2000 - Subsec. (f)(2)(B). Pub. L. 106-554 inserted opening
parenthesis before "19 U.S.C.".
1999 - Subsec. (h)(4)(C)(iv). Pub. L. 106-170 substituted "to
manage" for "to reduce".
1998 - Subsec. (f)(2)(B). Pub. L. 105-206 substituted "19 U.S.C.
2461 et seq.)" for "(19 U.S.C. 2462)".
1996 - Subsec. (b)(1). Pub. L. 104-188, Sec. 1401(b)(10),
substituted "section 1 or 55" for "section 1, 55, or 402(d)(1)".
Subsec. (f)(2)(B). Pub. L. 104-188, Sec. 1954(b)(1), substituted
"under title V" for "within the meaning of section 502".
1994 - Subsec. (a)(3)(A). Pub. L. 103-465 substituted "85
percent" for "one-half".
Subsec. (c). Pub. L. 103-296 substituted "(J), (M), or (Q)" for
"(J), or (M)" in two places.
1993 - Subsec. (a)(2). Pub. L. 103-66, Sec. 13113(d)(5), inserted
"such gains and losses shall be determined without regard to
section 1202 and" after "except that" in second sentence.
Subsec. (h)(2)(B)(ii). Pub. L. 103-66, Sec. 13237(c)(1),
substituted "paragraph (5)" for "paragraph (4)".
Subsec. (h)(4) to (7). Pub. L. 103-66, Sec. 13237(a)(1), added
par. (4) and redesignated former pars. (4) to (6) as (5) to (7),
respectively.
1992 - Subsec. (a)(1)(B). Pub. L. 102-318, Sec. 521(b)(28),
struck out "402(a)(2), 403(a)(2), or" before "631(b)".
Subsec. (b)(1). Pub. L. 102-318, Sec. 521(b)(29), substituted
"402(d)(1)" for "402(e)(1)".
Subsec. (k)(1). Pub. L. 102-318, Sec. 521(b)(30), substituted
"402(e)(2)" for "402(a)(4)".
1988 - Subsec. (c). Pub. L. 100-647, Sec. 1001(d)(2)(B),
substituted "the second sentence of section 1441(b)" for "section
1441(b)(1) or (2)", and "(F), (J), or (M)" for "(F) or (J)" in two
places.
Subsecs. (j), (k). Pub. L. 100-647, Sec. 6134(a)(1), added
subsec. (j) and redesignated former subsec. (j) as (k).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1810(d)(3)(A),
substituted "subsection (h)" for "subsection (i)" in introductory
provisions.
Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 1810(e)(2)(A), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: "in the case of -
"(i) a sale or exchange of an original issue discount
obligation, the amount of any gain not in excess of the original
issue discount accruing while such obligation was held by the
nonresident alien individual (to the extent such discount was not
theretofore taken into account under clause (ii)), and
"(ii) the payment of interest on an original issue discount
obligation, an amount equal to the original issue discount
accrued on such obligation since the last payment of interest
thereon (except that such original issue discount shall be taken
into account under this clause only to the extent that the tax
thereon does not exceed the interest payment less the tax imposed
by subparagraph (A) thereon), and".
Subsec. (a)(1)(D). Pub. L. 99-514, Sec. 1211(b)(4), struck out
"or from payments which are treated as being so contingent under
subsection (e)," after "sold or exchanged,".
Subsec. (a)(2). Pub. L. 99-514, Sec. 301(b)(9), struck out "such
gains and losses shall be determined without regard to section 1202
(relating to deduction for capital gains) and" after "United
States, except that".
Subsec. (a)(3). Pub. L. 99-272 inserted at end "For treatment of
certain citizens of possessions of the United States, see section
932(c)."
Subsec. (e). Pub. L. 99-514, Sec. 1211(b)(5), struck out subsec.
(e) which related to gains from sale or exchange of certain
intangible property, par. (1) treating payments as contingent on
use, etc., and par. (2) containing source rule.
Subsec. (h)(2). Pub. L. 99-514, Sec. 1810(d)(1)(A), (3)(B),
inserted "which would be subject to tax under subsection (a) but
for this subsection and" in introductory provisions and substituted
"receives a statement" for "has received a statement" in subpar.
(B)(ii).
Subsec. (h)(3)(C)(ii), (iii). Pub. L. 99-514, Sec. 1810(d)(2),
added cl. (ii) and redesignated former cl. (ii) as (iii).
Subsecs. (i), (j). Pub. L. 99-514, Sec. 1214(c)(1), added subsec.
(i) and redesignated former subsec. (i) as (j).
1984 - Subsec. (a)(1). Pub. L. 98-369, Sec. 127(a)(2),
substituted "Except as provided in subsection (i), there" for
"There".
Subsec. (a)(1)(A). Pub. L. 98-369, Sec. 42(a)(9), substituted
"section 1273" for "section 1232(b)".
Subsec. (a)(1)(C). Pub. L. 98-369, Sec. 128(a)(1), amended
subpar. (C) generally, substituting in cl. (i), "a sale or exchange
of an original issue discount obligation, the amount of any gain
not in excess of the original issue discount accruing while such
obligation was held by the nonresident alien individual (to the
extent such discount was not theretofore taken into account under
clause (ii)), and" for "bonds or other evidences of indebtedness
issued after September 28, 1965, and before April 1, 1972, amounts
which under section 1232(a)(2)(B) are considered as ordinary
income, and, in the case of corporate obligations issued after May
27, 1969, and before April 1, 1972, amounts which would be so
considered but for the fact the obligations were issued after May
27, 1969,", substituting in cl. (ii), "the payment of interest on
an original issue discount obligation, an amount equal to the
original issue discount accrued on such obligation since the last
payment of interest thereon (except that such original issue
discount shall be taken into account under this clause only to the
extent that the tax thereon does not exceed the interest payment
less the tax imposed by subparagraph (A) thereon), and" for "bonds
or other evidences of indebtedness issued after March 31, 1972, and
payable more than 6 months from the date of original issue (without
regard to the period held by the taxpayer), amounts which under
section 1232(a)(2)(B) would be considered as ordinary income but
for the fact such obligations were issued after May 27, 1969, and",
and striking out cl. (iii) which required that in the case of the
payment of interest on an obligation described in cl. (ii), an
amount equal to the original issue discount, but not in excess of
such interest less the tax imposed by subpar. (A) thereon, accrued
on such obligation since the last payment of interest thereon, be
included for purpose of the 30 percent tax.
Subsec. (g). Pub. L. 98-369, Sec. 128(a)(2), added subsec. (g).
Former subsec. (g), relating to cross references, redesignated (h).
Subsec. (g)(6) to (8). Pub. L. 98-369, Sec. 412(b)(1), amended
subsec. (g), relating to cross references, by striking out par. (6)
referring to section 6015(j) for the requirement of making a
declaration of estimated tax by certain nonresident alien
individuals and redesignating pars. (7) and (8) as (6) and (7),
respectively.
Subsec. (h). Pub. L. 98-369, Sec. 127(a), added subsec. (h).
Former subsec. (h), relating to cross references, redesignated (i).
Pub. L. 98-369, Sec. 128(a)(2), redesignated subsec. (g),
relating to cross references, as (h).
Subsec. (i). Pub. L. 98-369, Sec. 127(a)(1), redesignated subsec.
(h), relating to cross references, as (i).
1983 - Subsec. (a)(3). Pub. L. 98-21, Sec. 121(c)(1), added par.
(3).
Subsec. (a)(3)(A). Pub. L. 98-21, Sec. 335(b)(2)(B), inserted
"(notwithstanding section 207 of the Social Security Act)" after
"income".
1981 - Subsec. (g)(6). Pub. L. 97-34 substituted "6015(j)" for
"6015(i)".
1980 - Subsec. (b)(1). Pub. L. 96-222 substituted "55" for
"section 55".
Subsec. (f). Pub. L. 96-605 designated existing provision as par.
(1), inserted heading "In general" and redesignated par. (1) as
subpar. (A), cls. (A) and (B) of subpar. (A) as so redesignated as
cls. (i) and (ii), and par. (2) as subpar. (B), and added par. (2).
Subsec. (g)(8). Pub. L. 96-499 added par. (8).
1978 - Subsec. (b)(1). Pub. L. 95-600, Secs. 401(b)(3),
421(e)(4), substituted "section 1, section 55, or 402(e)(1)" for
"section 1, 402(e)(1), or 1201(b)".
1976 - Subsec. (a)(1)(C)(i), (ii). Pub. L. 94-455, Sec.
1901(b)(3)(I), substituted "ordinary income" for "gain from the
sale or exchange of property which is not a capital asset".
Subsec. (d). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary", each time appearing.
Subsec. (g)(7). Pub. L. 94-455, Sec. 1012(a)(2), added par. (7).
1974 - Subsec. (b)(1). Pub. L. 93-406 inserted reference to
section 402(e)(1).
1971 - Subsec. (a)(1)(A). Pub. L. 92-178, Sec. 313(a), inserted
"(other than original issue discount as defined in section
1232(b))" after "interest".
Subsec. (a)(1)(C). Pub. L. 92-178, Sec. 313(b), designated
existing provisions as cl. (i), inserted "and before April 1,
1972," after "September 28, 1965,", substituted "section
1232(a)(2)(B)" for "section 1232", and inserted ", in the case of
corporate obligations issued after May 27, 1969, and before April
1, 1972, amounts which would be so considered but for the fact the
obligations were issued after May 27, 1969,", and added cls. (ii)
and (iii).
1966 - Subsecs. (a), (b). Pub. L. 89-809 consolidated the
substance of former subsecs. (a) to (c) and, as part of the
consolidation, revised the overall income tax treatment of
nonresident alien individuals by substituting provisions dividing
their income for tax purposes into two basic groups according to
whether or not the income is effectively connected with a United
States trade or business for provisions calling for different tax
treatment based upon whether or not they are, or are not, engaged
in a trade or business in the United States, with a further
breakdown of those not engaged in trade or business in the United
States as to whether their income is over or under $21,200.
Subsec. (c). Pub. L. 89-809 redesignated subsec. (d) as (c) and
inserted provisions that any income described in section 1441(b)(1)
or (2) which is received by such individual shall, to the extent
derived from sources within the United States, be treated as
effectively connected with the conduct of a trade or business
within the United States. Substance of former subsec. (c) revised
and incorporated into subsecs. (a) and (b).
Subsecs. (d) to (f). Pub. L. 89-809 added subsecs. (d) to (f) and
redesignated former subsecs. (d) and (e) as (c) and (g),
respectively.
Subsec. (g). Pub. L. 89-809 redesignated former subsec. (e) as
(g), added pars. (2) and (4) to (6), and redesignated former pars.
(1) and (2) as (3) and (1), respectively.
1964 - Subsec. (a). Pub. L. 88-272, Sec. 113(b)(2), substituted
"30 percent tax" for "and gross income of not more than $15,400" in
heading.
Subsec. (b). Pub. L. 88-272, Secs. 113(b)(1), (3), 201(d)(12),
substituted "$19,000 in the case of a taxable year beginning in
1964 or more than $21,200 in the case of a taxable year beginning
after 1964" for "$15,400", "the credit under section 35" for "the
sum of the credits under sections 34 and 35" in text, and "Regular
tax" for "and gross income of more than $15,400" in heading.
1961 - Subsecs. (d), (e). Pub. L. 87-256 added subsec. (d) and
redesignated former subsec. (d) as (e).
1960 - Subsec. (d). Pub. L. 86-437 substituted "Cross references"
for "Doubling of tax" in heading, and inserted cross reference to
section 402(a)(4).
1958 - Subsec. (a)(1). Pub. L. 85-866, Sec. 40(a), inserted
"section 403(a)(2)," after "section 402(a)(2),".
Subsec. (b). Pub. L. 85-866, Sec. 41(a), inserted last par.
covering former provisions of par. (3), which was struck out by the
amendment, and containing new provisions with references to credits
under section 34 and 35 and exclusion under section 116 of this
title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1401(b)(10) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1999, with retention of
certain transition rules, see section 1401(c) of Pub. L. 104-188,
set out as a note under section 402 of this title.
Amendment by section 1954(b)(1) of Pub. L. 104-188 applicable to
articles entered on or after Oct. 1, 1996, with provisions relating
to retroactive application, see section 1953 of Pub. L. 104-188,
set out as an Effective Date note under section 2461 of Title 19,
Customs Duties.
EFFECTIVE DATE OF 1994 AMENDMENTS
Section 733(b) of Pub. L. 103-465 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
benefits paid after December 31, 1994, in taxable years ending
after such date."
Section 320(c) of Pub. L. 103-296 provided that: "The amendments
made by this subsection [probably means this section, which amended
this section, sections 872, 1441, 3121, 3231, 3306, and 7701 of
this title, and section 410 of Title 42, The Public Health and
Welfare] shall take effect with the calendar quarter following the
date of the enactment of this Act [Aug. 15, 1994]."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13113(d)(5) of Pub. L. 103-66 applicable to
stock issued after Aug. 10, 1993, see section 13113(e) of Pub. L.
103-66, set out as a note under section 53 of this title.
Section 13237(d) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 881, 1441,
1442, and 2105 of this title] shall apply to interest received
after December 31, 1993; except that the amendments made by
subsection (b) [amending section 2105 of this title] shall apply to
the estates of decedents dying after December 31, 1993."
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1001(d)(2)(B) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 6134(b) of Pub. L. 100-647 provided that: "The amendments
made by subsection (a) [amending this section and section 1441 of
this title] shall take effect on the date of the enactment of this
Act [Nov. 10, 1988]."
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 301(b)(9) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
Amendment by section 1211(b)(4), (5) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Amendment by section 1214(c)(1) of Pub. L. 99-514 applicable to
payments made in taxable year of payor beginning after Dec. 31,
1986, except as otherwise provided, see section 1214(d) of Pub. L.
99-514, as amended, set out as a note under section 861 of this
title.
Amendment by section 1810(d)(1)(A), (2), (3)(A), (B), (e)(2)(A)
of Pub. L. 99-514 effective, except as otherwise provided, as if
included in the provisions of the Tax Reform Act of 1984, Pub. L.
98-369, div. A, to which such amendment relates, see section 1881
of Pub. L. 99-514, set out as a note under section 48 of this
title.
Section 12103(c) of Pub. L. 99-272 provided that: "The amendments
made by this section [amending this section and section 932 of this
title] shall apply to benefits received after December 31, 1983, in
taxable years ending after such date."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 42(a)(9) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Section 127(g) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 100-647, title VI,
Sec. 6128(a), Nov. 10, 1988, 102 Stat. 3716, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 163, 864, 881, 1441, 1442, and 2105 of this
title] shall apply to interest received after the date of the
enactment of this Act [July 18, 1984] with respect to obligations
issued after such date, in taxable years ending after such date.
"(2) Subsection (d). - The amendment made by subsection (d)
[amending section 2105 of this title] shall apply to obligations
issued after the date of the enactment of this Act [July 18, 1984]
with respect to the estates of decedents dying after such date.
"(3) Special rule for certain united states affiliate
obligations. -
"(A) In general. - For purposes of the Internal Revenue Code of
1986 [formerly I.R.C. 1954], payments of interest on a United
States affiliate obligation to an applicable CFC in existence on
or before June 22, 1984, shall be treated as payments to a
resident of the country in which the applicable CFC is
incorporated.
"(B) Exception. - Subparagraph (A) shall not apply to any
applicable CFC which did not meet requirements which are based on
the principles set forth in Revenue Rulings 69-501, 69-377,
70-645, and 73-110 as such principles are applied in Revenue
Ruling 86-6, except that the maximum debt-to-equity ratio
described in such Revenue Rulings shall be increased from 5-to-1
to 25-to-1.
"(C) Definitions. -
"(i) The term 'applicable CFC' has the meaning given such
term by section 121(b)(2)(D) of this Act [set out as a note
under section 904 of this title], except that such section
shall be applied by substituting 'the date of interest payment'
for 'March 31, 1984,' in clause (i) thereof.
"(ii) The term 'United States affiliate obligation' means an
obligation described in section 121(b)(2)(F) of this Act [set
out as a note under section 904 of this title] which was issued
before June 22, 1984."
[Section 6128(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending section 127(g) of Pub. L. 98-369,
set out above] shall apply to taxable years ending after the date
of the enactment of this Act [Nov. 10, 1988]."]
Section 128(d) of Pub. L. 98-369 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
163 and 881 of this title] shall apply to payments made on or after
the 60th day after the date of the enactment of this Act [July 18,
1984] with respect to obligations issued after March 31, 1972.
"(2) Subsection (c). - The amendment made by subsection (c)
[amending section 163 of this title] shall apply to obligations
issued after June 9, 1984."
Amendment by section 412(b)(1) of Pub. L. 98-369 applicable with
respect to taxable years beginning after Dec. 31, 1984, see section
414(a)(1) of Pub. L. 98-369, set out as a note under section 6654
of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by section 121(c)(1) of Pub. L. 98-21 applicable to
benefits received after Dec. 31, 1983, in taxable years ending
after such date, except for any portion of a lump-sum payment of
social security benefits received after Dec. 31, 1983, if the
generally applicable payment date for such portion was before Jan.
1, 1984, see section 121(g) of Pub. L. 98-21, set out as an
Effective Date note under section 86 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 725(d) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section and sections 6015,
6153, 6654, and 7701 of this title] shall apply to estimated tax
for taxable years beginning after December 31, 1980."
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 227(b) of Pub. L. 96-605 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts received after July 1, 1979."
Amendment by Pub. L. 96-499 applicable to dispositions after June
18, 1980, see section 1125(a) of Pub. L. 96-499, set out as an
Effective Date note under section 897 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 401(b)(3) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 401(c) of
Pub. L. 95-600, set out as a note under section 1201 of this title.
Amendment by section 421(e)(4) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 421(g) of
Pub. L. 95-600, set out as a note under section 5 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1012(a)(2) of Pub. L. 94-455 applicable to
taxable years ending on or after Dec. 31, 1975, see section 1012(d)
of Pub. L. 94-455, set out as a note under section 6013 of this
title.
Amendment by section 1901(b)(3)(I) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by Pub. L. 93-406 applicable only with respect to
distributions or payments made after Dec. 31, 1973, in taxable
years beginning after Dec. 31, 1973, see section 2005(d) of Pub. L.
93-406, set out as a note under section 402 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 313(f) of Pub. L. 92-178, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments to section 871 and 881 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] made by this section shall apply with
respect to taxable years beginning after December 31, 1966. The
amendments to sections 1441 and 1442 of such Code made by this
section shall apply with respect to payments occurring on or after
April 1, 1972."
EFFECTIVE DATE OF 1966 AMENDMENT
Section 103(n) of Pub. L. 89-809 provided that:
"(1) The amendments made by this section (other than the
amendments made by subsections (h), (i), and (k)) [amending this
section and sections 1, 116, 154, 872 to 874, 875, 932, 6015, and
7701 of this title, redesignating section 877 as 878, enacting
section 877 of this title, and repealing section 1493 of this
title] shall apply with respect to taxable years beginning after
December 31, 1966.
"(2) The amendments made by subsection (h) [amending section 1441
of this title] shall apply with respect to payments made in taxable
years of recipients beginning after December 31, 1966.
"(3) The amendments made by subsection (i) [amending section 1461
of this title] shall apply with respect to payments occurring after
December 31, 1966.
"(4) The amendments made by subsection (k) [amending section 3401
of this title] shall apply with respect to remuneration paid after
December 31, 1966."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 113(b)(1) of Pub. L. 88-272 effective,
except for purposes of section 21 of this title, with respect to
taxable years beginning after Dec. 31, 1963, see section 131 of
Pub. L. 88-272, set out as a note under section 1 of this title.
Amendment by section 201(d)(12) of Pub. L. 88-272 applicable with
respect to dividends received after Dec. 31, 1964, in taxable years
ending after such date, see section 201(e) of Pub. L. 88-272, set
out as a note under section 37 of this title.
EFFECTIVE DATE OF 1961 AMENDMENT
Amendment by Pub. L. 87-256 applicable to taxable years beginning
after Dec. 31, 1961, see section 110(h)(1) of Pub. L. 87-256, set
out as a note under section 117 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-437 applicable only with respect to
taxable years beginning after Dec. 31, 1959, see section 3 of Pub.
L. 86-437, set out as a note under section 402 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 40(c) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) [amending this section] shall apply only
with respect to taxable years ending after the date of the
enactment of this Act [Sept. 2, 1958]. The amendments made by
subsection (b) [amending section 1441 of this title] shall take
effect on the day following the date of the enactment of this Act
[Sept. 2, 1958]."
Section 41(c) of Pub. L. 85-866 provided that: "The amendments
made by this section [amending this section and section 35 of this
title] shall apply only with respect to taxable years beginning
after December 31, 1957."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendments by sections 1211(b)(4), (5) and
1214(c)(1) of Pub. L. 99-514 to the extent application of such
amendments would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L.
104-188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 2, 5, 26, 32, 306, 860G,
861, 864, 873, 877, 881, 882, 884, 887, 891, 897, 906, 1235, 1276,
1278, 1441, 1442, 1444, 1445, 2105, 6012, 6049, 7701 of this title;
title 48 section 1421i.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 872 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 872. Gross income
-STATUTE-
(a) General rule
In the case of a nonresident alien individual, except where the
context clearly indicates otherwise, gross income includes only -
(1) gross income which is derived from sources within the
United States and which is not effectively connected with the
conduct of a trade or business within the United States, and
(2) gross income which is effectively connected with the
conduct of a trade or business within the United States.
(b) Exclusions
The following items shall not be included in gross income of a
nonresident alien individual, and shall be exempt from taxation
under this subtitle:
(1) Ships operated by certain nonresidents
Gross income derived by an individual resident of a foreign
country from the international operation of a ship or ships if
such foreign country grants an equivalent exemption to individual
residents of the United States.
(2) Aircraft operated by certain nonresidents
Gross income derived by an individual resident of a foreign
country from the international operation of aircraft if such
foreign country grants an equivalent exemption to individual
residents of the United States.
(3) Compensation of participants in certain exchange or training
programs
Compensation paid by a foreign employer to a nonresident alien
individual for the period he is temporarily present in the United
States as a nonimmigrant under subparagraph (F), (J), or (Q) of
section 101(a)(15) of the Immigration and Nationality Act, as
amended. For purposes of this paragraph, the term "foreign
employer" means -
(A) a nonresident alien individual, foreign partnership, or
foreign corporation, or
(B) an office or place of business maintained in a foreign
country or in a possession of the United States by a domestic
corporation, a domestic partnership, or an individual who is a
citizen or resident of the United States.
(4) Certain bond income of residents of the Ryukyu Islands or the
Trust Territory of the Pacific Islands
Income derived by a nonresident alien individual from a series
E or series H United States savings bond, if such individual
acquired such bond while a resident of the Ryukyu Islands or the
Trust Territory of the Pacific Islands.
(5) Certain rental income
Income to which paragraphs (1) and (2) apply shall include
income which is derived from the rental on a full or bareboat
basis of a ship or ships or aircraft, as the case may be.
(6) Application to different types of transportation
The Secretary may provide that this subsection be applied
separately with respect to income from different types of
transportation.
(7) Treatment of possessions
To the extent provided in regulations, a possession of the
United States shall be treated as a foreign country for purposes
of this subsection.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 280; Pub. L. 87-256, Sec.
110(c), Sept. 21, 1961, 75 Stat. 536; Pub. L. 89-809, title I, Sec.
103(b), Nov. 13, 1966, 80 Stat. 1550; Pub. L. 99-514, title XII,
Sec. 1212(c)(1), (2), Oct. 22, 1986, 100 Stat. 2538; Pub. L.
100-647, title I, Sec. 1012(e)(2)(B), (5), (s)(2)(A), Nov. 10,
1988, 102 Stat. 3500, 3527; Pub. L. 101-239, title VII, Sec.
7811(i)(8)(C), Dec. 19, 1989, 103 Stat. 2411; Pub. L. 103-296,
title III, Sec. 320(a)(2), Aug. 15, 1994, 108 Stat. 1535.)
-REFTEXT-
REFERENCES IN TEXT
Section 101 of the Immigration and Nationality Act, referred to
in subsec. (b)(3), is classified to section 1101 of Title 8, Aliens
and Nationality.
-MISC1-
AMENDMENTS
1994 - Subsec. (b)(3). Pub. L. 103-296 substituted "(F), (J), or
(Q)" for "(F) or (J)".
1989 - Subsec. (b)(7). Pub. L. 101-239 added par. (7).
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1012(s)(2)(A), inserted
", except where the context clearly indicates otherwise" after
"individual".
Subsec. (b)(1), (2). Pub. L. 100-647, Sec. 1012(e)(2)(B), (5),
substituted "to individual residents of the United States" for "to
citizens of the United States and to corporations organized in the
United States" and "international operation" for "operation".
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1212(c)(1), added
par. (1) and struck out former par. (1), ships under foreign flag,
which read as follows: "Earnings derived from the operation of a
ship or ships documented under the laws of a foreign country which
grants an equivalent exemption to citizens of the United States and
to corporations organized in the United States."
Subsec. (b)(2). Pub. L. 99-514, Sec. 1212(c)(1), added par. (2)
and struck out former par. (2), aircraft of foreign registry, which
read as follows: "Earnings derived from the operation of aircraft
registered under the laws of a foreign country which grants an
equivalent exemption to citizens of the United States and to
corporations organized in the United States."
Subsec. (b)(5), (6). Pub. L. 99-514, Sec. 1212(c)(2), added pars.
(5) and (6).
1966 - Subsec. (a). Pub. L. 89-809, Sec. 103(b)(1), limited the
inclusion of gross income which is derived from sources within the
United States to such income which is not effectively connected
with the conduct of a trade or business within the United States
and inserted provision including gross income without the
limitation as to source which is effectively connected with the
conduct of a trade or business within the United States.
Subsec. (b)(3)(B). Pub. L. 89-809, Sec. 103(b)(2), substituted
"by a domestic corporation, a domestic partnership, or an
individual who is a citizen or resident of the United States" for
"by a domestic corporation".
Subsec. (b)(4). Pub. L. 89-809, Sec. 102(b)(3), added par. (4).
1961 - Subsec. (b)(3). Pub. L. 87-256 added par. (3).
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-296 effective with calendar quarter
following Aug. 15, 1994, see section 320(c) of Pub. L. 103-296, set
out as a note under section 871 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1212(f) of Pub. L. 99-514, set out
as a note under section 863 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 103(n)(1) of Pub.
L. 89-809, set out as a note under section 871 of this title.
EFFECTIVE DATE OF 1961 AMENDMENT
Amendment by Pub. L. 87-256 applicable to taxable years beginning
after Dec. 31, 1961, see section 110(h)(1) of Pub. L. 87-256, set
out as a note under section 117 of this title.
-TRANS-
TERMINATION OF TRUST TERRITORY OF THE PACIFIC ISLANDS
For termination of Trust Territory of the Pacific Islands, see
note set out preceding section 1681 of Title 48, Territories and
Insular Possessions.
-MISC2-
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1212(c)(1), (2) of
Pub. L. 99-514 to the extent application of such amendment would be
contrary to any treaty obligation of the United States in effect on
Oct. 22, 1986, with provision that for such purposes any amendment
by title I of Pub. L. 100-647 be treated as if it had been included
in the provision of Pub. L. 99-514 to which such amendment relates,
see section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 877, 883, 7701 of this
title.
-End-
-CITE-
26 USC Sec. 873 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 873. Deductions
-STATUTE-
(a) General rule
In the case of a nonresident alien individual, the deductions
shall be allowed only for purposes of section 871(b) and (except as
provided by subsection (b)) only if and to the extent that they are
connected with income which is effectively connected with the
conduct of a trade or business within the United States; and the
proper apportionment and allocation of the deductions for this
purpose shall be determined as provided in regulations prescribed
by the Secretary.
(b) Exceptions
The following deductions shall be allowed whether or not they are
connected with income which is effectively connected with the
conduct of a trade or business within the United States:
(1) Losses
The deduction allowed by section 165 for casualty or theft
losses described in paragraph (2) or (3) of section 165(c), but
only if the loss is of property located within the United States.
(2) Charitable contributions
The deduction for charitable contributions and gifts allowed by
section 170.
(3) Personal exemption
The deduction for personal exemptions allowed by section 151,
except that only one exemption shall be allowed under section 151
unless the taxpayer is a resident of a contiguous country or is a
national of the United States.
(c) Cross reference
For rule that certain foreign taxes are not to be taken into
account in determining deduction or credit, see section
906(b)(1).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 280; Pub. L. 89-809, title I,
Sec. 103(c)(1), Nov. 13, 1966, 80 Stat. 1550; Pub. L. 92-580, Sec.
1(b), Oct. 27, 1972, 86 Stat. 1276; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-30, title
I, Sec. 101(d)(11), May 23, 1977, 91 Stat. 134; Pub. L. 98-369,
div. A, title VII, Sec. 711(c)(2)(A)(iv), July 18, 1984, 98 Stat.
945; Pub. L. 105-277, div. J, title IV, Sec. 4004(b)(3), Oct. 21,
1998, 112 Stat. 2681-911.)
-MISC1-
AMENDMENTS
1998 - Subsec. (b)(1). Pub. L. 105-277 amended heading and text
of par. (1) generally. Prior to amendment, text read as follows:
"The deduction for losses allowed by section 165(c)(3), but only if
the loss is of property located within the United States."
1984 - Subsec. (b)(1). Pub. L. 98-369 substituted "for losses"
for ", for losses of property not connected with the trade or
business if arising from certain casualties or theft,".
1977 - Subsec. (c). Pub. L. 95-30 struck out par. (1) which made
a cross reference to section 142(b)(1) for disallowance of the
standard deduction and struck out "(2)" at beginning of single
remaining cross reference.
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
1972 - Subsec. (b)(3). Pub. L. 92-580 substituted exception that
only one exemption be allowed under section 151 unless the taxpayer
is a resident of a contiguous country or is a national of the
United States, for exception that in the case of a non-resident
alien individual who is not a resident of a contiguous country only
one exception be allowed under section 151.
1966 - Pub. L. 89-809 amended section generally, substituting
"connected with income which is effectively connected with the
conduct of a trade or business within the United States" for
"connected with income from sources within the United States" in
subsec. (a), striking out provisions relating to the deduction of
losses not connected with a trade or business but incurred in
transactions entered into for profit in subsec. (b), making the
casualty loss deduction available even if the property giving rise
to the loss is not effectively connected with the conduct of a
trade or business in the United States if the property is located
in this country, making the charitable contribution deduction
available even though not related to the trade or business, and
adding subsec. (c)(2) making a cross reference to section 906(b)(1)
for rule that certain foreign taxes are not to be taken into
account in determining deduction or credit.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-277 applicable to taxable years
beginning after Dec. 31, 1983, see section 4004(c)(1) of Pub. L.
105-277, set out as a note under section 172 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 711(c)(2)(A)(v) of Pub. L. 98-369,
set out as a note under section 165 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1972 AMENDMENT
Amendment by Pub. L. 92-580 applicable to taxable years beginning
after Dec. 31, 1971, see section 1(c) of Pub. L. 92-580, set out as
a note under section 152 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 103(n)(1) of Pub.
L. 89-809, set out as a note under section 871 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 153, 170, 877, 906 of
this title.
-End-
-CITE-
26 USC Sec. 874 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 874. Allowance of deductions and credits
-STATUTE-
(a) Return prerequisite to allowance
A nonresident alien individual shall receive the benefit of the
deductions and credits allowed to him in this subtitle only by
filing or causing to be filed with the Secretary a true and
accurate return, in the manner prescribed in subtitle F (sec. 6001
and following, relating to procedure and administration), including
therein all the information which the Secretary may deem necessary
for the calculation of such deductions and credits. This subsection
shall not be construed to deny the credits provided by sections 31
and 33 for tax withheld at source or the credit provided by section
34 for certain uses of gasoline and special fuels.
(b) Tax withheld at source
The benefit of the deduction for exemptions under section 151
may, in the discretion of the Secretary, and under regulations
prescribed by the Secretary, be received by a non-resident alien
individual entitled thereto, by filing a claim therefor with the
withholding agent.
(c) Foreign tax credit
Except as provided in section 906, a nonresident alien individual
shall not be allowed the credits against the tax for taxes of
foreign countries and possessions of the United States allowed by
section 901.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 281; Pub. L. 89-44, title VIII,
Sec. 809(d)(3), June 21, 1965, 79 Stat. 167; Pub. L. 89-809, title
I, Secs. 103(d), 106(a)(3), Nov. 13, 1966, 80 Stat. 1551, 1569;
Pub. L. 91-258, title II, Sec. 207(d)(1), May 21, 1970, 84 Stat.
248; Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976,
90 Stat. 1834; Pub. L. 97-424, title V, Sec. 515(b)(6)(E), Jan. 6,
1983, 96 Stat. 2182; Pub. L. 98-369, div. A, title IV, Sec.
474(r)(19), July 18, 1984, 98 Stat. 843.)
-MISC1-
AMENDMENTS
1984 - Subsec. (a). Pub. L. 98-369 substituted reference to
section "33" for "32" and "34" for "39".
1983 - Subsec. (a). Pub. L. 97-424 substituted "and special
fuels" for ", special fuels, and lubricating oil".
1976 - Subsecs. (a), (b). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1970 - Subsec. (a). Pub. L. 91-258 included provision against
construction of subsec. (a) to deny credit provided by section 39
for certain uses of special fuels.
1966 - Subsec. (a). Pub. L. 89-809, Sec. 103(d), struck out "of
his total income received from all sources in the United States"
after "true and accurate return".
Subsec. (c). Pub. L. 89-809, Sec. 106(a)(3), substituted "Foreign
tax credit" for "Foreign tax credit not allowed" in heading and
inserted reference to an exception provided in section 906.
1965 - Subsec. (a). Pub. L. 89-44 inserted "or the credit
provided by section 39 for certain uses of gasoline and lubricating
oil".
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-424 applicable with respect to articles
sold after Jan. 6, 1983, see section 515(c) of Pub. L. 97-424, set
out as a note under section 34 of this title.
EFFECTIVE DATE OF 1970 AMENDMENT
Amendment by Pub. L. 91-258 effective July 1, 1970, see section
211(a) of Pub. L. 91-258, set out as a note under section 4041 of
this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by section 103(d) of Pub. L. 89-809 applicable with
respect to taxable years beginning after Dec. 31, 1966, see section
103(n)(1) of Pub. L. 89-809, set out as a note under section 871 of
this title.
Section 106(a)(6) of Pub. L. 89-809, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this subsection [enacting section 906 of this
title and amending this section and section 901 of this title]
shall apply with respect to taxable years beginning after Dec. 31,
1966. In applying section 904 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] with respect to section 906 of such Code, no
amount may be carried from or to any taxable year beginning before
Jan. 1, 1967, and no such year shall be taken into account."
EFFECTIVE DATE OF 1965 AMENDMENT
Amendment by Pub. L. 89-44 applicable to taxable years beginning
on or after July 1, 1965, see section 809(f) of Pub. L. 89-44, set
out as a note under section 6420 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1441 of this title.
-End-
-CITE-
26 USC Sec. 875 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 875. Partnerships; beneficiaries of estates and trusts
-STATUTE-
For purposes of this subtitle -
(1) a nonresident alien individual or foreign corporation shall
be considered as being engaged in a trade or business within the
United States if the partnership of which such individual or
corporation is a member is so engaged, and
(2) a nonresident alien individual or foreign corporation which
is a beneficiary of an estate or trust which is engaged in any
trade or business within the United States shall be treated as
being engaged in such trade or business within the United States.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 281; Pub. L. 89-809, title I,
Sec. 103(e)(1), Nov. 13, 1966, 80 Stat. 1551.)
-MISC1-
AMENDMENTS
1966 - Pub. L. 89-809 designated existing provisions as par. (1),
substituted reference to nonresident alien individuals or foreign
corporations for reference simply to nonresident alien individuals,
and added par. (2).
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 103(n)(1) of Pub.
L. 89-809, set out as a note under section 871 of this title.
-End-
-CITE-
26 USC Sec. 876 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 876. Alien residents of Puerto Rico, Guam, American Samoa, or
the Northern Mariana Islands
-STATUTE-
(a) General rule
This subpart shall not apply to any alien individual who is a
bona fide resident of Puerto Rico, Guam, American Samoa, or the
Northern Mariana Islands during the entire taxable year and such
alien shall be subject to the tax imposed by section 1.
(b) Cross references
For exclusion from gross income of income derived from
sources within -
(1) Guam, American Samoa, and the Northern Mariana Islands,
see section 931, and
(2) Puerto Rico, see section 933.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 281; Pub. L. 99-514, title XII,
Sec. 1272(b), Oct. 22, 1986, 100 Stat. 2593.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514, Sec. 1272(b), inserted ", Guam, American
Samoa, or the Northern Mariana Islands" in section catchline.
Subsec. (a). Pub. L. 99-514, Sec. 1272(b), amended subsec. (a)
generally, substituting "General rule" for "No application to
certain alien residents of Puerto Rico" in heading and inserting
references to residents of Guam, American Samoa, and the Northern
Mariana Islands in text.
Subsec. (b). Pub. L. 99-514, Sec. 1272(b), amended subsec. (b)
generally, inserting references to Guam, American Samoa, and the
Northern Mariana Islands.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, with certain exceptions and qualifications,
see section 1277 of Pub. L. 99-514, set out as a note under section
931 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 901, 931 of this title.
-End-
-CITE-
26 USC Sec. 877 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 877. Expatriation to avoid tax
-STATUTE-
(a) Treatment of expatriates
(1) In general
Every nonresident alien individual who, within the 10-year
period immediately preceding the close of the taxable year, lost
United States citizenship, unless such loss did not have for one
of its principal purposes the avoidance of taxes under this
subtitle or subtitle B, shall be taxable for such taxable year in
the manner provided in subsection (b) if the tax imposed pursuant
to such subsection (after any reduction in such tax under the
last sentence of such subsection) exceeds the tax which, without
regard to this section, is imposed pursuant to section 871.
(2) Certain individuals treated as having tax avoidance purpose
For purposes of paragraph (1), an individual shall be treated
as having a principal purpose to avoid such taxes if -
(A) the average annual net income tax (as defined in section
38(c)(1)) of such individual for the period of 5 taxable years
ending before the date of the loss of United States citizenship
is greater than $100,000, or
(B) the net worth of the individual as of such date is
$500,000 or more.
In the case of the loss of United States citizenship in any
calendar year after 1996, such $100,000 and $500,000 amounts
shall be increased by an amount equal to such dollar amount
multiplied by the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting "1994" for
"1992" in subparagraph (B) thereof. Any increase under the
preceding sentence shall be rounded to the nearest multiple of
$1,000.
(b) Alternative tax
A nonresident alien individual described in subsection (a) shall
be taxable for the taxable year as provided in section 1 or 55,
except that -
(1) the gross income shall include only the gross income
described in section 872(a) (as modified by subsection (d) of
this section), and
(2) the deductions shall be allowed if and to the extent that
they are connected with the gross income included under this
section, except that the capital loss carryover provided by
section 1212(b) shall not be allowed; and the proper allocation
and apportionment of the deductions for this purpose shall be
determined as provided under regulations prescribed by the
Secretary.
For purposes of paragraph (2), the deductions allowed by section
873(b) shall be allowed; and the deduction (for losses not
connected with the trade or business if incurred in transactions
entered into for profit) allowed by section 165(c)(2) shall be
allowed, but only if the profit, if such transaction had resulted
in a profit, would be included in gross income under this section.
The tax imposed solely by reason of this section shall be reduced
(but not below zero) by the amount of any income, war profits, and
excess profits taxes (within the meaning of section 903) paid to
any foreign country or possession of the United States on any
income of the taxpayer on which tax is imposed solely by reason of
this section.
(c) Tax avoidance not presumed in certain cases
(1) In general
Subsection (a)(2) shall not apply to an individual if -
(A) such individual is described in a subparagraph of
paragraph (2) of this subsection, and
(B) within the 1-year period beginning on the date of the
loss of United States citizenship, such individual submits a
ruling request for the Secretary's determination as to whether
such loss has for one of its principal purposes the avoidance
of taxes under this subtitle or subtitle B.
(2) Individuals described
(A) Dual citizenship, etc.
An individual is described in this subparagraph if -
(i) the individual became at birth a citizen of the United
States and a citizen of another country and continues to be a
citizen of such other country, or
(ii) the individual becomes (not later than the close of a
reasonable period after loss of United States citizenship) a
citizen of the country in which -
(I) such individual was born,
(II) if such individual is married, such individual's
spouse was born, or
(III) either of such individual's parents were born.
(B) Long-term foreign residents
An individual is described in this subparagraph if, for each
year in the 10-year period ending on the date of loss of United
States citizenship, the individual was present in the United
States for 30 days or less. The rule of section
7701(b)(3)(D)(ii) shall apply for purposes of this
subparagraph.
(C) Renunciation upon reaching age of majority
An individual is described in this subparagraph if the
individual's loss of United States citizenship occurs before
such individual attains age 18 1/2 .
(D) Individuals specified in regulations
An individual is described in this subparagraph if the
individual is described in a category of individuals prescribed
by regulation by the Secretary.
(d) Special rules for source, etc.
For purposes of subsection (b) -
(1) Source rules
The following items of gross income shall be treated as income
from sources within the United States:
(A) Sale of property
Gains on the sale or exchange of property (other than stock
or debt obligations) located in the United States.
(B) Stock or debt obligations
Gains on the sale or exchange of stock issued by a domestic
corporation or debt obligations of United States persons or of
the United States, a State or political subdivision thereof, or
the District of Columbia.
(C) Income or gain derived from controlled foreign corporation
Any income or gain derived from stock in a foreign
corporation but only -
(i) if the individual losing United States citizenship
owned (within the meaning of section 958(a)), or is
considered as owning (by applying the ownership rules of
section 958(b)), at any time during the 2-year period ending
on the date of the loss of United States citizenship, more
than 50 percent of -
(I) the total combined voting power of all classes of
stock entitled to vote of such corporation, or
(II) the total value of the stock of such corporation,
and
(ii) to the extent such income or gain does not exceed the
earnings and profits attributable to such stock which were
earned or accumulated before the loss of citizenship and
during periods that the ownership requirements of clause (i)
are met.
(2) Gain recognition on certain exchanges
(A) In general
In the case of any exchange of property to which this
paragraph applies, notwithstanding any other provision of this
title, such property shall be treated as sold for its fair
market value on the date of such exchange, and any gain shall
be recognized for the taxable year which includes such date.
(B) Exchanges to which paragraph applies
This paragraph shall apply to any exchange during the 10-year
period beginning on the date the individual loses United States
citizenship if -
(i) gain would not (but for this paragraph) be recognized
on such exchange in whole or in part for purposes of this
subtitle,
(ii) income derived from such property was from sources
within the United States (or, if no income was so derived,
would have been from such sources), and
(iii) income derived from the property acquired in the
exchange would be from sources outside the United States.
(C) Exception
Subparagraph (A) shall not apply if the individual enters
into an agreement with the Secretary which specifies that any
income or gain derived from the property acquired in the
exchange (or any other property which has a basis determined in
whole or part by reference to such property) during such
10-year period shall be treated as from sources within the
United States. If the property transferred in the exchange is
disposed of by the person acquiring such property, such
agreement shall terminate and any gain which was not recognized
by reason of such agreement shall be recognized as of the date
of such disposition.
(D) Secretary may extend period
To the extent provided in regulations prescribed by the
Secretary, subparagraph (B) shall be applied by substituting
the 15-year period beginning 5 years before the loss of United
States citizenship for the 10-year period referred to therein.
In the case of any exchange occurring during such 5 years, any
gain recognized under this subparagraph shall be recognized
immediately after such loss of citizenship.
(E) Secretary may require recognition of gain in certain cases
To the extent provided in regulations prescribed by the
Secretary -
(i) the removal of appreciated tangible personal property
from the United States, and
(ii) any other occurrence which (without recognition of
gain) results in a change in the source of the income or gain
from property from sources within the United States to
sources outside the United States,
shall be treated as an exchange to which this paragraph
applies.
(3) Substantial diminishing of risks of ownership
For purposes of determining whether this section applies to any
gain on the sale or exchange of any property, the running of the
10-year period described in subsection (a) and the period
applicable under paragraph (2) shall be suspended for any period
during which the individual's risk of loss with respect to the
property is substantially diminished by -
(A) the holding of a put with respect to such property (or
similar property),
(B) the holding by another person of a right to acquire the
property, or
(C) a short sale or any other transaction.
(4) Treatment of property contributed to controlled foreign
corporations
(A) In general
If -
(i) an individual losing United States citizenship
contributes property during the 10-year period beginning on
the date the individual loses United States citizenship to
any corporation which, at the time of the contribution, is
described in subparagraph (B), and
(ii) income derived from such property immediately before
such contribution was from sources within the United States
(or, if no income was so derived, would have been from such
sources),
any income or gain on such property (or any other property
which has a basis determined in whole or part by reference to
such property) received or accrued by the corporation shall be
treated as received or accrued directly by such individual and
not by such corporation. The preceding sentence shall not apply
to the extent the property has been treated under subparagraph
(C) as having been sold by such corporation.
(B) Corporation described
A corporation is described in this subparagraph with respect
to an individual if, were such individual a United States
citizen -
(i) such corporation would be a controlled foreign
corporation (as defined in (!1) 957), and
(ii) such individual would be a United States shareholder
(as defined in section 951(b)) with respect to such
corporation.
(C) Disposition of stock in corporation
If stock in the corporation referred to in subparagraph (A)
(or any other stock which has a basis determined in whole or
part by reference to such stock) is disposed of during the
10-year period referred to in subsection (a) and while the
property referred to in subparagraph (A) is held by such
corporation, a pro rata share of such property (determined on
the basis of the value of such stock) shall be treated as sold
by the corporation immediately before such disposition.
(D) Anti-abuse rules
The Secretary shall prescribe such regulations as may be
necessary to prevent the avoidance of the purposes of this
paragraph, including where -
(i) the property is sold to the corporation, and
(ii) the property taken into account under subparagraph (A)
is sold by the corporation.
(E) Information reporting
The Secretary shall require such information reporting as is
necessary to carry out the purposes of this paragraph.
(e) Comparable treatment of lawful permanent residents who cease to
be taxed as residents
(1) In general
Any long-term resident of the United States who -
(A) ceases to be a lawful permanent resident of the United
States (within the meaning of section 7701(b)(6)), or
(B) commences to be treated as a resident of a foreign
country under the provisions of a tax treaty between the United
States and the foreign country and who does not waive the
benefits of such treaty applicable to residents of the foreign
country,
shall be treated for purposes of this section and sections 2107,
2501, and 6039G in the same manner as if such resident were a
citizen of the United States who lost United States citizenship
on the date of such cessation or commencement.
(2) Long-term resident
For purposes of this subsection, the term "long-term resident"
means any individual (other than a citizen of the United States)
who is a lawful permanent resident of the United States in at
least 8 taxable years during the period of 15 taxable years
ending with the taxable year during which the event described in
subparagraph (A) or (B) of paragraph (1) occurs. For purposes of
the preceding sentence, an individual shall not be treated as a
lawful permanent resident for any taxable year if such individual
is treated as a resident of a foreign country for the taxable
year under the provisions of a tax treaty between the United
States and the foreign country and does not waive the benefits of
such treaty applicable to residents of the foreign country.
(3) Special rules
(A) Exceptions not to apply
Subsection (c) shall not apply to an individual who is
treated as provided in paragraph (1).
(B) Step-up in basis
Solely for purposes of determining any tax imposed by reason
of this subsection, property which was held by the long-term
resident on the date the individual first became a resident of
the United States shall be treated as having a basis on such
date of not less than the fair market value of such property on
such date. The preceding sentence shall not apply if the
individual elects not to have such sentence apply. Such an
election, once made, shall be irrevocable.
(4) Authority to exempt individuals
This subsection shall not apply to an individual who is
described in a category of individuals prescribed by regulation
by the Secretary.
(5) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out this subsection, including regulations
providing for the application of this subsection in cases where
an alien individual becomes a resident of the United States
during the 10-year period after being treated as provided in
paragraph (1).
(f) Burden of proof
If the Secretary establishes that it is reasonable to believe
that an individual's loss of United States citizenship would, but
for this section, result in a substantial reduction for the taxable
year in the taxes on his probable income for such year, the burden
of proving for such taxable year that such loss of citizenship did
not have for one of its principal purposes the avoidance of taxes
under this subtitle or subtitle B shall be on such individual.
-SOURCE-
(Added Pub. L. 89-809, title I, Sec. 103(f)(1), Nov. 13, 1966, 80
Stat. 1551; amended Pub. L. 93-406, title II, Sec. 2005(c)(8),
Sept. 2, 1974, 88 Stat. 992; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-600, title
IV, Sec. 421(e)(5), Nov. 6, 1978, 92 Stat. 2876; Pub. L. 96-222,
title I, Sec. 104(a)(1), (4)(H)(v), Apr. 1, 1980, 94 Stat. 214,
217; Pub. L. 99-514, title XII, Sec. 1243(a), Oct. 22, 1986, 100
Stat. 2580; Pub. L. 102-318, title V, Sec. 521(b)(31), July 3,
1992, 106 Stat. 312; Pub. L. 104-188, title I, Sec. 1401(b)(11),
Aug. 20, 1996, 110 Stat. 1789; Pub. L. 104-191, title V, Sec.
511(a)-(d), (f)(1), Aug. 21, 1996, 110 Stat. 2093-2098; Pub. L.
105-34, title XVI, Sec. 1602(g)(1)-(4), (h)(3), Aug. 5, 1997, 111
Stat. 1095, 1096.)
-STATAMEND-
ADJUSTMENT OF NET TAX AND NET WORTH AMOUNTS FOR CALENDAR YEAR 2004
For adjustment of average annual net income tax and net worth
amounts under subsection (a)(2) of this section for calendar year
2004, see section 3.24 of Revenue Procedure 2003-85, set out as a
note under section 1 of this title.
-MISC1-
PRIOR PROVISIONS
A prior section 877 was renumbered section 878 of this title.
AMENDMENTS
1997 - Subsec. (d)(2)(B). Pub. L. 105-34, Sec. 1602(g)(1),
substituted "the 10-year period beginning on the date the
individual loses United States citizenship" for "the 10-year period
described in subsection (a)" in introductory provisions.
Subsec. (d)(2)(D). Pub. L. 105-34, Sec. 1602(g)(2), inserted at
end "In the case of any exchange occurring during such 5 years, any
gain recognized under this subparagraph shall be recognized
immediately after such loss of citizenship."
Subsec. (d)(3). Pub. L. 105-34, Sec. 1602(g)(3), inserted "and
the period applicable under paragraph (2)" after "subsection (a)"
in introductory provisions.
Subsec. (d)(4)(A). Pub. L. 105-34, Sec. 1602(g)(4)(C), struck out
"during the 10-year period referred to in subsection (a)," before
"any income or gain" in concluding provisions.
Subsec. (d)(4)(A)(i). Pub. L. 105-34, Sec. 1602(g)(4)(A),
inserted "during the 10-year period beginning on the date the
individual loses United States citizenship" after "contributes
property".
Subsec. (d)(4)(A)(ii). Pub. L. 105-34, Sec. 1602(g)(4)(B),
inserted "immediately before such contribution" after "from such
property".
Subsec. (e)(1). Pub. L. 105-34, Sec. 1602(h)(3), substituted
"6039G" for "6039F" in concluding provisions.
1996 - Subsec. (a). Pub. L. 104-191, Sec. 511(a), amended subsec.
(a) generally. Prior to amendment, subsec. (a) read as follows:
"(a) In General. - Every nonresident alien individual who at any
time after March 8, 1965, and within the 10-year period immediately
preceding the close of the taxable year lost United States
citizenship, unless such loss did not have for one of its principal
purposes the avoidance of taxes under this subtitle or subtitle B,
shall be taxable for such taxable year in the manner provided in
subsection (b) if the tax imposed pursuant to such subsection
exceeds the tax which, without regard to this section, is imposed
pursuant to section 871."
Subsec. (a)(1). Pub. L. 104-191, Sec. 511(d)(2), inserted "(after
any reduction in such tax under the last sentence of such
subsection)" after "such subsection".
Subsec. (b). Pub. L. 104-191, Sec. 511(d)(1), inserted at end
"The tax imposed solely by reason of this section shall be reduced
(but not below zero) by the amount of any income, war profits, and
excess profits taxes (within the meaning of section 903) paid to
any foreign country or possession of the United States on any
income of the taxpayer on which tax is imposed solely by reason of
this section."
Pub. L. 104-188 substituted "section 1 or 55" for "section 1, 55,
or 402(d)(1)".
Subsec. (b)(1). Pub. L. 104-191, Sec. 511(b)(2), substituted
"subsection (d)" for "subsection (c)".
Subsec. (c). Pub. L. 104-191, Sec. 511(b)(1), added subsec. (c).
Former subsec. (c) redesignated (d).
Subsec. (d). Pub. L. 104-191, Sec. 511(c), amended subsec. (d)
generally. Prior to amendment, subsec. (d) read as follows:
"(d) Special Rules of Source. - For purposes of subsection (b),
the following items of gross income shall be treated as income from
sources within the United States:
"(1) Sale of property. - Gains on the sale or exchange of
property (other than stock or debt obligations) located in the
United States.
"(2) Stock or debt obligations. - Gains on the sale or exchange
of stock issued by a domestic corporation or debt obligations of
United States persons or of the United States, a State or
political subdivision thereof, or the District of Columbia.
For purposes of this section, gain on the sale or exchange of
property which has a basis determined in whole or in part by
reference to property described in paragraph (1) or (2) shall be
treated as gain described in paragraph (1) or (2)."
Pub. L. 104-191, Sec. 511(b)(1), redesignated subsec. (c) as (d)
and struck out former subsec. (d) which read as follows:
"(d) Exception for Loss of Citizenship for Certain Causes. -
Subsection (a) shall not apply to a nonresident alien individual
whose loss of United States citizenship resulted from the
application of section 301(b), 350, or 355 of the Immigration and
Nationality Act, as amended (8 U.S.C. 1401(b), 1482, or 1487)."
Subsecs. (e), (f). Pub. L. 104-191, Sec. 511(f)(1), added subsec.
(e) and redesignated former subsec. (e) as (f).
1992 - Subsec. (b). Pub. L. 102-318 substituted "402(d)(1)" for
"402(e)(1)".
1986 - Subsec. (c). Pub. L. 99-514 inserted at end "For purposes
of this section, gain on the sale or exchange of property which has
a basis determined in whole or in part by reference to property
described in paragraph (1) or (2) shall be treated as gain
described in paragraph (1) or (2)."
1980 - Subsec. (b). Pub. L. 96-222 substituted "55, or 402(e)(1)"
for "section 55, 402(e)(1), or section 1201(b)".
1978 - Subsec. (b). Pub. L. 95-600 substituted "section 1,
section 55," for "section 1".
1976 - Subsecs. (b)(2), (e). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1974 - Subsec. (b). Pub. L. 93-406 inserted reference to section
402(e)(1).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Health Insurance Portability and Accountability
Act of 1996, Pub. L. 104-191, to which such amendment relates, see
section 1602(i) of Pub. L. 105-34, set out as a note under section
26 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 511(g) of Pub. L. 104-191 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 2107 and 2501 of this title] shall apply
to -
"(A) individuals losing United States citizenship (within the
meaning of section 877 of the Internal Revenue Code of 1986) on
or after February 6, 1995, and
"(B) long-term residents of the United States with respect to
whom an event described in subparagraph (A) or (B) of section
877(e)(1) of such Code occurs on or after February 6, 1995.
"(2) Ruling requests. - In no event shall the 1-year period
referred to in section 877(c)(1)(B) of such Code, as amended by
this section, expire before the date which is 90 days after the
date of the enactment of this Act [Aug. 21, 1996].
"(3) Special rule. -
"(A) In general. - In the case of an individual who performed
an act of expatriation specified in paragraph (1), (2), (3), or
(4) of section 349(a) of the Immigration and Nationality Act (8
U.S.C. 1481(a)(1)-(4)) before February 6, 1995, but who did not,
on or before such date, furnish to the United States Department
of State a signed statement of voluntary relinquishment of United
States nationality confirming the performance of such act, the
amendments made by this section and section 512 [enacting section
6039F of this title] shall apply to such individual except that
the 10-year period described in section 877(a) of such Code shall
not expire before the end of the 10-year period beginning on the
date such statement is so furnished.
"(B) Exception. - Subparagraph (A) shall not apply if the
individual establishes to the satisfaction of the Secretary of
the Treasury that such loss of United States citizenship occurred
before February 6, 1994."
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1999, with retention of certain transition
rules, see section 1401(c) of Pub. L. 104-188, set out as a note
under section 402 of this title.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-318 applicable to distributions after
Dec. 31, 1992, see section 521(e) of Pub. L. 102-318, set out as a
note under section 402 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1243(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to sales
or exchanges of property received in exchanges after September 25,
1985."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 421(g) of Pub. L. 95-600, set out
as a note under section 5 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by Pub. L. 93-406 applicable only with respect to
distributions or payments made after Dec. 31, 1973, in taxable
years beginning after Dec. 31, 1973, see section 2005(d) of Pub. L.
93-406, set out as a note under section 402 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years beginning after
Dec. 31, 1966, see section 103(n)(1) of Pub. L. 89-809, set out as
an Effective Date of 1966 Amendment note under section 871 of this
title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998
For provisions directing that if any amendments made by subtitle
D [Secs. 1401-1465] of title I of Pub. L. 104-188 require an
amendment to any plan or annuity contract, such amendment shall not
be required to be made before the first day of the first plan year
beginning on or after Jan. 1, 1998, see section 1465 of Pub. L.
104-188, set out as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994
For provisions directing that if any amendments made by subtitle
B [Secs. 521-523] of title V of Pub. L. 102-318 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1994, see section 523 of Pub. L. 102-318, set out as a note under
section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 2, 121, 865, 894, 2057,
2107, 2501, 3405, 6039G, 7701 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be followed by "section".
-End-
-CITE-
26 USC Sec. 878 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 878. Foreign educational, charitable, and certain other exempt
organizations
-STATUTE-
For special provisions relating to foreign educational,
charitable, and other exempt organizations, see sections 512(a)
and 4948.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 282, Sec. 877; renumbered Sec.
878, Pub. L. 89-809, title I, Sec. 103(f)(1), Nov. 13, 1966, 80
Stat. 1551; amended Pub. L. 91-172, title I, Sec. 101(j)(20), Dec.
30, 1969, 83 Stat. 528.)
-MISC1-
AMENDMENTS
1969 - Pub. L. 91-172 substituted provisions requiring reference
to organizations in sections 512(a) and 4948 for provisions
requiring reference to trusts in section 512(a), and struck out
reference to unrelated business income.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 101(k)(2)(B) of Pub. L. 91-172,
set out as an Effective Date note under section 4940 of this title.
-End-
-CITE-
26 USC Sec. 879 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart A - Nonresident Alien Individuals
-HEAD-
Sec. 879. Tax treatment of certain community income in the case of
nonresident alien individuals
-STATUTE-
(a) General rule
In the case of a married couple 1 or both of whom are nonresident
alien individuals and who have community income for the taxable
year, such community income shall be treated as follows:
(1) Earned income (within the meaning of section 911(d)(2)),
other than trade or business income and a partner's distributive
share of partnership income, shall be treated as the income of
the spouse who rendered the personal services,
(2) Trade or business income, and a partner's distributive
share of partnership income, shall be treated as provided in
section 1402(a)(5),
(3) Community income not described in paragraph (1) or (2)
which is derived from the separate property (as determined under
the applicable community property law) of one spouse shall be
treated as the income of such spouse, and
(4) All other such community income shall be treated as
provided in the applicable community property law.
(b) Exception where election under section 6013(g) is in effect
Subsection (a) shall not apply for any taxable year for which an
election under subsection (g) or (h) of section 6013 (relating to
election to treat nonresident alien individual as resident of the
United States) is in effect.
(c) Definitions and special rules
For purposes of this section -
(1) Community income
The term "community income" means income which, under
applicable community property laws, is treated as community
income.
(2) Community property laws
The term "community property laws" means the community property
laws of a State, a foreign country, or a possession of the United
States.
(3) Determination of marital status
The determination of marital status shall be made under section
7703(a).
-SOURCE-
(Added Pub. L. 94-455, title X, Sec. 1012(b)(1), Oct. 4, 1976, 90
Stat. 1613; amended Pub. L. 97-34, title I, Sec. 111(b)(4), Aug.
13, 1981, 95 Stat. 194; Pub. L. 98-369, div. A, title I, Sec.
139(a), (b)(1), July 18, 1984, 98 Stat. 677; Pub. L. 99-514, title
XIII, Sec. 1301(j)(9), Oct. 22, 1986, 100 Stat. 2658.)
-MISC1-
AMENDMENTS
1986 - Subsec. (c)(3). Pub. L. 99-514 substituted "section
7703(a)" for "section 143(a)".
1984 - Pub. L. 98-369, Sec. 139(b)(1), substituted "nonresident
alien individuals" for "a resident or citizen of the United States
who is married to a nonresident alien individual" in section
catchline.
Subsec. (a). Pub. L. 98-369, Sec. 139(a), substituted in
provision preceding par. (1) "married couple 1 or both of whom are
nonresident alien individuals" for "citizen or resident of the
United States who is married to a nonresident alien individual".
1981 - Subsec. (a)(1). Pub. L. 97-34 substituted "section
911(d)(2)" for "section 911(b)".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to bonds issued after Aug.
15, 1986, except as otherwise provided, see sections 1311 to 1318
of Pub. L. 99-514, set out as an Effective Date; Transitional Rules
note under section 141 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 139(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1984."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable with respect to taxable
years beginning after Dec. 31, 1981, see section 115 of Pub. L.
97-34, set out as a note under section 911 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1976, see section 1012(d) of Pub. L. 94-455, set out as an
Effective Date of 1976 Amendment note under section 6013 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 66 of this title.
-End-
-CITE-
26 USC Subpart B - Foreign Corporations 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
SUBPART B - FOREIGN CORPORATIONS
-MISC1-
Sec.
881. Tax on income of foreign corporations not connected
with United States business.
882. Tax on income of foreign corporations connected with
United States business.
883. Exclusions from gross income.
884. Branch profits tax.
885. Cross references.
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Sec. 1241(d), Oct. 22, 1986,
100 Stat. 2580, added item 884 and redesignated former item 884 as
885.
1966 - Pub. L. 89-809, title I, Sec. 104(b)(3), Nov. 13, 1966, 80
Stat. 1557, substituted "Tax on income of foreign corporations not
connected with United States business" for "Tax on foreign
corporations not engaged in business in United States" in item 881,
and "Tax on income of foreign corporations connected with United
States business" for "Tax on resident foreign corporations" in item
882.
-End-
-CITE-
26 USC Sec. 881 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
Sec. 881. Tax on income of foreign corporations not connected with
United States business
-STATUTE-
(a) Imposition of tax
Except as provided in subsection (c), there is hereby imposed for
each taxable year a tax of 30 percent of the amount received from
sources within the United States by a foreign corporation as -
(1) interest (other than original issue discount as defined in
section 1273), dividends, rents, salaries, wages, premiums,
annuities, compensations, remunerations, emoluments, and other
fixed or determinable annual or periodical gains, profits, and
income,
(2) gains described in section 631(b) or (c),
(3) in the case of -
(A) a sale or exchange of an original issue discount
obligation, the amount of the original issue discount accruing
while such obligation was held by the foreign corporation (to
the extent such discount was not theretofore taken into account
under subparagraph (B)), and
(B) a payment on an original issue discount obligation, an
amount equal to the original issue discount accruing while such
obligation was held by the foreign corporation (except that
such original issue discount shall be taken into account under
this subparagraph only to the extent such discount was not
theretofore taken into account under this subparagraph and only
to the extent that the tax thereon does not exceed the payment
less the tax imposed by paragraph (1) thereon), and
(4) gains from the sale or exchange after October 4, 1966, of
patents, copyrights, secret processes and formulas, good will,
trademarks, trade brands, franchises, and other like property, or
of any interest in any such property, to the extent such gains
are from payments which are contingent on the productivity, use,
or disposition of the property or interest sold or exchanged,
but only to the extent the amount so received is not effectively
connected with the conduct of a trade or business within the United
States.
(b) Exception for certain Guam and Virgin Islands corporations
(1) In general
For purposes of this section and section 884, a corporation
created or organized in Guam, American Samoa, the Northern
Mariana Islands, or the Virgin Islands or under the law of any
such possession shall not be treated as a foreign corporation for
any taxable year if -
(A) at all times during such taxable year less than 25
percent in value of the stock of such corporation is
beneficially owned (directly or indirectly) by foreign persons,
(B) at least 65 percent of the gross income of such
corporation is shown to the satisfaction of the Secretary to be
effectively connected with the conduct of a trade or business
in such a possession or the United States for the 3-year period
ending with the close of the taxable year of such corporation
(or for such part of such period as the corporation or any
predecessor has been in existence), and
(C) no substantial part of the income of such corporation is
used (directly or indirectly) to satisfy obligations to persons
who are not bona fide residents of such a possession or the
United States.
(2) Definitions
(A) Foreign person
For purposes of paragraph (1), the term "foreign person"
means any person other than -
(i) a United States person, or
(ii) a person who would be a United States person if
references to the United States in section 7701 included
references to a possession of the United States.
(B) Indirect ownership rules
For purposes of paragraph (1), the rules of section 318(a)(2)
shall apply except that "5 percent" shall be substituted for
"50 percent" in subparagraph (C) thereof.
(c) Repeal of tax on interest of foreign corporations received from
certain portfolio debt investments
(1) In general
In the case of any portfolio interest received by a foreign
corporation from sources within the United States, no tax shall
be imposed under paragraph (1) or (3) of subsection (a).
(2) Portfolio interest
For purposes of this subsection, the term "portfolio interest"
means any interest (including original issue discount) which
would be subject to tax under subsection (a) but for this
subsection and which is described in any of the following
subparagraphs:
(A) Certain obligations which are not registered
Interest which is paid on any obligation which is described
in section 871(h)(2)(A).
(B) Certain registered obligations
Interest which is paid on an obligation -
(i) which is in registered form, and
(ii) with respect to which the person who would otherwise
be required to deduct and withhold tax from such interest
under section 1442(a) receives a statement which meets the
requirements of section 871(h)(5) that the beneficial owner
of the obligation is not a United States person.
(3) Portfolio interest shall not include interest received by
certain persons
For purposes of this subsection, the term "portfolio interest"
shall not include any portfolio interest which -
(A) except in the case of interest paid on an obligation of
the United States, is received by a bank on an extension of
credit made pursuant to a loan agreement entered into in the
ordinary course of its trade or business,
(B) is received by a 10-percent shareholder (within the
meaning of section 871(h)(3)(B)), or
(C) is received by a controlled foreign corporation from a
related person (within the meaning of section 864(d)(4)).
(4) Portfolio interest not to include certain contingent interest
For purposes of this subsection, the term "portfolio interest"
shall not include any interest which is treated as not being
portfolio interest under the rules of section 871(h)(4).
(5) Special rules for controlled foreign corporations
(A) In general
In the case of any portfolio interest received by a
controlled foreign corporation, the following provisions shall
not apply:
(i) Subparagraph (A) of section 954(b)(3) (relating to
exception where foreign base company income is less than 5
percent or $1,000,000).
(ii) Paragraph (4) of section 954(b) (relating to exception
for certain income subject to high foreign taxes).
(iii) Clause (i) of section 954(c)(3)(A) (relating to
certain income received from related persons).
(B) Controlled foreign corporation
For purposes of this subsection, the term "controlled foreign
corporation" has the meaning given to such term by section
957(a).
(6) Secretary may cease application of this subsection
Under rules similar to the rules of section 871(h)(6), the
Secretary may provide that this subsection shall not apply to
payments of interest described in section 871(h)(6).
(7) Registered form
For purposes of this subsection, the term "registered form" has
the meaning given such term by section 163(f).
(d) Tax not to apply to certain interest and dividends
No tax shall be imposed under paragraph (1) or (3) of subsection
(a) on any amount described in section 871(i)(2).
(e) Cross reference
For doubling of tax on corporations of certain foreign
countries, see section 891.
For special rules for original issue discount, see section
871(g).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 282; Pub. L. 89-809, title I,
Sec. 104(a), Nov. 13, 1966, 80 Stat. 1555; Pub. L. 92-178, title
III, Sec. 313(a), (c), Dec. 10, 1971, 85 Stat. 526, 527; Pub. L.
92-606, Sec. 1(e)(1), Oct. 31, 1972, 86 Stat. 1497; Pub. L. 94-455,
title XIX, Sec. 1901(b)(3)(I), Oct. 4, 1976, 90 Stat. 1793; Pub. L.
98-369, div. A, title I, Secs. 42(a)(10), 127(b), 128(b), 130(a),
July 18, 1984, 98 Stat. 557, 650, 654, 660; Pub. L. 99-514, title
XII, Secs. 1211(b)(6), 1214(c)(2), 1223(b)(2), 1273(b)(1), (2)(A),
title XVIII, Secs. 1810(d)(1)(B), (3)(C), (e)(2)(B), 1899A(22),
(23), (68), Oct. 22, 1986, 100 Stat. 2536, 2542, 2558, 2595, 2596,
2825, 2826, 2959, 2962; Pub. L. 100-647, title I, Sec. 1012(i)(17),
Nov. 10, 1988, 102 Stat. 3510; Pub. L. 103-66, title XIII, Sec.
13237(a)(2), (c)(2), (3), Aug. 10, 1993, 107 Stat. 507, 508.)
-MISC1-
AMENDMENTS
1993 - Subsec. (c)(2)(B)(ii). Pub. L. 103-66, Sec. 13237(c)(2),
substituted "section 871(h)(5)" for "section 871(h)(4)".
Subsec. (c)(4), (5). Pub. L. 103-66, Sec. 13237(a)(2), added par.
(4) and redesignated former par. (4) as (5). Former par. (5)
redesignated (6).
Subsec. (c)(6). Pub. L. 103-66, Sec. 13237(a)(2), (c)(3),
redesignated par. (5) as (6) and substituted "section 871(h)(6)"
for "section 871(h)(5)" in two places. Former par. (6) redesignated
(7).
Subsec. (c)(7). Pub. L. 103-66, Sec. 13237(a)(2), redesignated
par. (6) as (7).
1988 - Subsec. (c)(4)(A)(ii) to (v). Pub. L. 100-647 added cls.
(ii) and (iii) and struck out former cls. (ii) to (v), which read
as follows:
"(ii) Paragraph (4) of section 954(b) (relating to corporations
not formed or availed of to avoid tax).
"(iii) Subparagraph (B) of section 954(c)(3) (relating to certain
income derived in active conduct of trade or business).
"(iv) Subparagraph (C) of section 954(c)(3) (relating to certain
income derived by an insurance company).
"(v) Subparagraphs (A) and (B) of section 954(c)(4) (relating to
exception for certain income received from related persons)."
1986 - Subsec. (a)(3)(A). Pub. L. 99-514, Sec. 1810(e)(2)(B),
amended subpar. (A) generally, striking out "any gain not in excess
of" before "the original issue discount".
Subsec. (a)(3)(B). Pub. L. 99-514, Sec. 1810(e)(2)(B), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "the payment of interest on an original issue discount
obligation, an amount equal to the original issue discount accrued
on such obligation since the last payment of interest thereon
(except that such original issue discount shall be taken into
account under this subparagraph only to the extent that the tax
thereon does not exceed the interest payment less the tax imposed
by paragraph (1) thereon), and".
Subsec. (a)(4). Pub. L. 99-514, Sec. 1211(b)(6), struck out "or
from payments which are treated as being so contingent under
section 871(e)," after "sold or exchanged,".
Subsec. (b)(1). Pub. L. 99-514, Sec. 1273(b)(1), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "For
purposes of this section, a corporation created or organized in
Guam or the Virgin Islands or under the law of Guam or the Virgin
Islands shall not be treated as a foreign corporation for any
taxable year if -
"(A) at all times during such taxable year less than 25 percent
in value of the stock of such corporation is owned (directly or
indirectly) by foreign persons, and
"(B) at least 20 percent of the gross income of such
corporation is shown to the satisfaction of the Secretary to have
been derived from sources within Guam or the Virgin Islands (as
the case may be) for the 3-year period ending with the close of
the preceding taxable year of such corporation (or for such part
of such period as the corporation has been in existence)."
Subsec. (b)(2). Pub. L. 99-514, Sec. 1273(b)(1), (2)(A),
redesignated par. (3) as (2) and struck out former par. (2) which
provided that par. (1) of this subsection not apply with respect to
income tax liability incurred to Guam.
Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 1899A(22), substituted
"paragraph" for "Paragraph".
Subsec. (b)(3), (4). Pub. L. 99-514, Sec. 1273(b)(2)(A),
redesignated par. (3) as (2) and struck out par. (4) which provided
a cross reference to sections 934 and 934A.
Subsec. (c). Pub. L. 99-514, Sec. 1899A(68), made clarifying
amendment to directory language of Pub. L. 98-369, Sec. 127(b)(1).
See 1984 Amendment note below.
Subsec. (c)(2). Pub. L. 99-514, Sec. 1810(d)(1)(B), (3)(C),
inserted "which would be subject to tax under subsection (a) but
for this subsection and" in introductory provisions and substituted
"receives a statement" for "has received a statement" in subpar.
(B)(ii).
Subsec. (c)(3)(C). Pub. L. 99-514, Sec. 1899A(23), inserted a
closing parenthesis following "section 864(d)(4)".
Subsec. (c)(4)(A)(i). Pub. L. 99-514, Sec. 1223(b)(2),
substituted "less than 5 percent or $1,000,000" for "less than 10
percent".
Subsecs. (d), (e). Pub. L. 99-514, Sec. 1214(c)(2), added subsec.
(d) and redesignated former subsec. (d) as (e).
1984 - Subsec. (a). Pub. L. 98-369, Sec. 127(b)(2), substituted
"Except as provided in subsection (c), there" for "There" in
introductory provision.
Subsec. (a)(1). Pub. L. 98-369, Sec. 42(a)(10), substituted
"section 1273" for "section 1232(b)".
Subsec. (a)(3). Pub. L. 98-369, Sec. 128(b)(1), amended par. (3)
generally, substituting in subpar. (A), "a sale or exchange of an
original issue discount obligation, the amount of any gain not in
excess of the original issue discount accruing while such
obligation was held by the foreign corporation (to the extent such
discount was not theretofore taken into account under subparagraph
(B)), and" for "bonds or other evidences of indebtedness issued
after September 28, 1965, and before April 1, 1972, amounts which
under section 1232(a)(2)(B) are considered as ordinary income, and,
in the case of corporate obligations issued after May 27, 1969, and
before April 1, 1972, amounts which would be so considered but for
the fact the obligations were issued after May 27, 1969,",
substituting in subpar. (B), "the payment of interest on an
original issue discount obligation, an amount equal to the original
issue discount accrued on such obligation since the last payment of
interest thereon (except that such original issue discount shall be
taken into account under this subparagraph only to the extent that
the tax thereon does not exceed the interest payment less the tax
imposed by paragraph (1) thereon), and" for "bonds or other
evidences of indebtedness issued after March 31, 1972, and payable
more than 6 months from the date of original issue (without regard
to the period held by the taxpayer), amounts which under section
1232(a)(2)(B) would be considered as ordinary income but for the
fact such obligations were issued after May 27, 1969, and", and
striking out subpar. (C) which required that in the case of the
payment of interest on an obligation described in subpar. (B), an
amount equal to the original issue discount, but not in excess of
such interest less the tax imposed by par. (1) thereon, accrued on
such obligation since the last payment of interest thereon, be
included for purpose of the 30 percent tax.
Subsec. (b). Pub. L. 98-369, Sec. 130(a), amended subsec. (b)
generally, substituting provision establishing an exception for
certain Guam and Virgin Islands corporations for provision
establishing an exception for Guam corporations.
Subsec. (c). Pub. L. 98-369, Sec. 127(b)(1), as amended by Pub.
L. 99-514, Sec. 1899A(68), added subsec. (c). Former subsec. (c)
redesignated (d).
Pub. L. 98-369, Sec. 128(b)(2), amended subsec. (c) generally,
substituting in heading "Cross reference" for "Doubling of tax" and
inserting provision directing that for special rules for original
issue discount, see section 871(g).
Subsec. (d). Pub. L. 98-369, Sec. 127(b)(1), as amended by Pub.
L. 99-514, Sec. 1899A(68), redesignated subsec. (c) as (d).
1976 - Subsec. (a)(3)(A), (B). Pub. L. 94-455 substituted
"ordinary income" for "gain from the sale or exchange of property
which is not a capital asset".
1972 - Subsecs. (b), (c). Pub. L. 92-606 added subsec. (b) and
redesignated former subsec. (b) as (c).
1971 - Subsec. (a)(1). Pub. L. 92-178, Sec. 313(a), inserted
"(other than original issue discount as defined in section
1232(b))" after "interest".
Subsec. (a)(3). Pub. L. 92-178, Sec. 313(c), designated existing
provisions as subpar. (A), inserted "and before April 1, 1972,"
after "September 28, 1965,", substituted "section 1232(a)(2)(B)"
for "section 1232", and inserted ", in the case of corporate
obligations issued after May 27, 1969, and before April 1, 1972,
amounts which would be so considered but for the fact that the
obligations were issued after May 27, 1969,", and added subpars.
(B) and (C).
1966 - Subsec. (a). Pub. L. 89-809 substantially revised the
income tax treatment of foreign corporations, substituted the
concept of amounts received from sources within the United States
by foreign corporations but not effectively connected with the
conduct of a trade or business within the United States for the
concept of amounts received from sources within the United States
by foreign corporations not engaged in trade or business within the
United States as the amount upon which the existing 30 percent levy
should be imposed, and added contingent income received from the
sale of patents and other intangibles and amounts of original issue
discount which are treated as ordinary income received on
retirement or sale or exchange of bonds or other evidences of
indebtedness issued after Sept. 28, 1965, to the specified types of
fixed or determinable income.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to interest received after
Dec. 31, 1993, see section 13237(d) of Pub. L. 103-66, set out as a
note under section 871 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1211(b)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1211(c) of Pub. L. 99-514, set out as an
Effective Date note under section 865 of this title.
Amendment by section 1214(c)(2) of Pub. L. 99-514 applicable to
payments made in taxable year of payor beginning after Dec. 31,
1986, except as otherwise provided, see section 1214(d) of Pub. L.
99-514, as amended, set out as a note under section 861 of this
title.
Amendment by section 1223(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1223(c) of
Pub. L. 99-514, set out as a note under section 864 of this title.
Amendment by section 1273(b)(1), (2)(A) of Pub. L. 99-514
applicable to taxable years beginning after Dec. 31, 1986, with
certain exceptions and qualifications, see section 1277 of Pub. L.
99-514, set out as a note under section 931 of this title.
Amendment by section 1810(d)(1)(B), (3)(C), (e)(2)(B) of Pub. L.
99-514 effective, except as otherwise provided, as if included in
the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div.
A, to which such amendment relates, see section 1881 of Pub. L.
99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 42(a)(10) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
Amendment by section 127(b) of Pub. L. 98-369 applicable to
interest received after July 18, 1984, with respect to obligations
issued after such date, in taxable years after such date, see
section 127(g)(1) of Pub. L. 98-369, set out as a note under
section 871 of this title.
Amendment by section 128(b) of Pub. L. 98-369 applicable to
payments made on or after the 60th day after July 18, 1984, with
respect to obligations issued after Mar. 31, 1972, see section
128(d)(1) of Pub. L. 98-369, set out as a note under section 871 of
this title.
Section 130(d) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and sections 1442 and
7651 of this title] shall apply to payments made after March 1,
1984, in taxable years ending after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective for taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1972 AMENDMENT
Section 2 of Pub. L. 92-606 provided in part that: "The
amendments made by section 1(e)(1) [amending this section] shall
apply with respect to taxable years beginning after December 31,
1971."
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by Pub. L. 92-178 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 313(f) of Pub. L.
92-178, set out as a note under section 871 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendments by sections 1211(b)(6) and
1214(c)(2) of Pub. L. 99-514 to the extent application of such
amendments would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 26, 306, 814, 842, 860G,
864, 871, 882, 884, 887, 891, 906, 1276, 1278, 1442, 1444, 1563,
6012, 6655 of this title; title 48 section 1421i.
-End-
-CITE-
26 USC Sec. 882 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
Sec. 882. Tax on income of foreign corporations connected with
United States business
-STATUTE-
(a) Imposition of tax
(1) In general
A foreign corporation engaged in trade or business within the
United States during the taxable year shall be taxable as
provided in section 11, 55, 59A, or 1201(a) on its taxable income
which is effectively connected with the conduct of a trade or
business within the United States.
(2) Determination of taxable income
In determining taxable income for purposes of paragraph (1),
gross income includes only gross income which is effectively
connected with the conduct of a trade or business within the
United States.
(3) [Cross reference (!1)]
For special tax treatment of gain or loss from the
disposition by a foreign corporation of a United States real
property interest, see section 897.
(b) Gross income
In the case of a foreign corporation, except where the context
clearly indicates otherwise, gross income includes only -
(1) gross income which is derived from sources within the
United States and which is not effectively connected with the
conduct of a trade or business within the United States, and
(2) gross income which is effectively connected with the
conduct of a trade or business within the United States.
(c) Allowance of deductions and credits
(1) Allocation of deductions
(A) General rule
In the case of a foreign corporation, the deductions shall be
allowed only for purposes of subsection (a) and (except as
provided by subparagraph (B)) only if and to the extent that
they are connected with income which is effectively connected
with the conduct of a trade or business within the United
States; and the proper apportionment and allocation of the
deductions for this purpose shall be determined as provided in
regulations prescribed by the Secretary.
(B) Charitable contributions
The deduction for charitable contributions and gifts provided
by section 170 shall be allowed whether or not connected with
income which is effectively connected with the conduct of a
trade or business within the United States.
(2) Deductions and credits allowed only if return filed
A foreign corporation shall receive the benefit of the
deductions and credits allowed to it in this subtitle only by
filing or causing to be filed with the Secretary a true and
accurate return, in the manner prescribed in subtitle F,
including therein all the information which the Secretary may
deem necessary for the calculation of such deductions and
credits. The preceding sentence shall not apply for purposes of
the tax imposed by section 541 (relating to personal holding
company tax), and shall not be construed to deny the credit
provided by section 33 for tax withheld at source or the credit
provided by section 34 for certain uses of gasoline.
(3) Foreign tax credit
Except as provided by section 906, foreign corporations shall
not be allowed the credit against the tax for taxes of foreign
countries and possessions of the United States allowed by section
901.
(4) Cross reference
For rule that certain foreign taxes are not to be taken into
account in determining deduction or credit, see section
906(b)(1).
(d) Election to treat real property income as income connected with
United States business
(1) In general
A foreign corporation which during the taxable year derives any
income -
(A) from real property located in the United States, or from
any interest in such real property, including (i) gains from
the sale or exchange of real property or an interest therein,
(ii) rents or royalties from mines, wells, or other natural
deposits, and (iii) gains described in section 631(b) or (c),
and
(B) which, but for this subsection, would not be treated as
income effectively connected with the conduct of a trade or
business within the United States,
may elect for such taxable year to treat all such income as
income which is effectively connected with the conduct of a trade
or business within the United States. In such case, such income
shall be taxable as provided in subsection (a)(1) whether or not
such corporation is engaged in trade or business within the
United States during the taxable year. An election under this
paragraph for any taxable year shall remain in effect for all
subsequent taxable years, except that it may be revoked with the
consent of the Secretary with respect to any taxable year.
(2) Election after revocation, etc.
Paragraphs (2) and (3) of section 871(d) shall apply in respect
of elections under this subsection in the same manner and to the
same extent as they apply in respect of elections under section
871(d).
(e) Interest on United States obligations received by banks
organized in possessions
In the case of a corporation created or organized in, or under
the law of, a possession of the United States which is carrying on
the banking business in a possession of the United States, interest
on obligations of the United States which is not portfolio interest
(as defined in section 881(c)(2)) shall -
(1) for purposes of this subpart, be treated as income which is
effectively connected with the conduct of a trade or business
within the United States, and
(2) shall be taxable as provided in subsection (a)(1) whether
or not such corporation is engaged in trade or business within
the United States during the taxable year.
(f) Returns of tax by agent
If any foreign corporation has no office or place of business in
the United States but has an agent in the United States, the return
required under section 6012 shall be made by the agent.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 282; Pub. L. 89-809, title I,
Sec. 104(b)(1), Nov. 13, 1966, 80 Stat. 1555; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L.
95-600, title III, Sec. 301(b)(13), Nov. 6, 1978, 92 Stat. 2822;
Pub. L. 96-499, title XI, Sec. 1122(c)(2), Dec. 5, 1980, 94 Stat.
2687; Pub. L. 97-424, title V, Sec. 515(b)(6)(F), Jan. 6, 1983, 96
Stat. 2182; Pub. L. 98-369, div. A, title IV, Sec. 474(r)(19), July
18, 1984, 98 Stat. 843; Pub. L. 99-514, title VII, Sec.
701(e)(4)(F), title XII, Sec. 1236(a), Oct. 22, 1986, 100 Stat.
2343, 2576; Pub. L. 100-647, title I, Sec. 1012(s)(2)(B), title II,
Sec. 2001(c)(2), title VI, Sec. 6133(a), Nov. 10, 1988, 102 Stat.
3527, 3594, 3721.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 2001(c)(2), inserted
reference to section 59A.
Subsec. (b). Pub. L. 100-647, Sec. 1012(s)(2)(B), inserted ",
except where the context clearly indicates otherwise" after
"foreign corporation".
Subsec. (e). Pub. L. 100-647, Sec. 6133(a), substituted "interest
on obligations of the United States which is not portfolio interest
(as defined in section 881(c)(2))" for "interest on obligations of
the United States", and struck out at end "The preceding sentence
shall not apply to any Guam corporation which is treated as not
being a foreign corporation by section 881(b)(1) for the taxable
year."
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 701(e)(4)(F),
inserted reference to section 55.
Subsec. (e). Pub. L. 99-514, Sec. 1236(a), inserted "The
preceding sentence shall not apply to any Guam corporation which is
treated as not being a foreign corporation by section 881(b)(1) for
the taxable year."
1984 - Subsec. (c)(2). Pub. L. 98-369 substituted reference to
section "33" for "32" and "34" for "39".
1983 - Subsec. (c)(2). Pub. L. 97-424 struck out "and lubricating
oil" after "gasoline".
1980 - Subsec. (a)(3). Pub. L. 96-499 added par. (3).
1978 - Subsec. (a). Pub. L. 95-600 substituted in subsec. (a)
heading "Imposition of tax" for "Normal tax and surtax" and in par.
(1) heading "In general" for "Imposition of tax".
1976 - Subsecs. (c)(1)(A), (2), (d). Pub. L. 94-455 struck out
"or his delegate" after "Secretary".
1966 - Pub. L. 89-809 substantially revised the income tax
treatment of foreign corporations, introduced the concept of
taxable income effectively connected with the conduct of a trade or
business within the United States into provisions dealing with the
imposition of tax, substituted a concept of gross income that
included gross income derived from sources within the United States
not effectively connected with the conduct of a trade or business
within the United States and gross income effectively connected
with the conduct of a trade or business within the United States
for a concept of gross income that included only gross income from
sources within the United States, and inserted provisions for an
election to treat real property income as income connected with
United States business, treatment of interest on United States
obligations received by banks organized in possessions, and the
returns of tax by agents, and inserted cross reference to section
906(b)(1).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 701(e)(4)(F) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Superfund Revenue
Act of 1986, Pub. L. 99-499, title V, to which it relates, see
section 2001(e) of Pub. L. 100-647, set out as a note under section
56 of this title.
Section 6133(c) of Pub. L. 100-647 provided that: "The amendments
made by this subsection [probably means 'this section', which
amended sections 882 and 884 of this title] shall apply to taxable
years beginning after December 31, 1988."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 701(e)(4)(F) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
Section 1236(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after November 16, 1985."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-424 applicable with respect to articles
sold after Jan. 6, 1983, see section 515(c) of Pub. L. 97-424, set
out as a note under section 34 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-499 applicable to disposition after June
18, 1980, see section 1125(a) of Pub. L. 96-499, set out as an
Effective Date note under section 897 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out
as a note under section 11 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(4)(F) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 11, 814, 864, 884, 887,
897, 906, 1442, 1445, 4373 of this title.
-FOOTNOTE-
(!1) Par. (3) heading editorially supplied.
-End-
-CITE-
26 USC Sec. 883 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
Sec. 883. Exclusions from gross income
-STATUTE-
(a) Income of foreign corporations from ships and aircraft
The following items shall not be included in gross income of a
foreign corporation, and shall be exempt from taxation under this
subtitle:
(1) Ships operated by certain foreign corporations
Gross income derived by a corporation organized in a foreign
country from the international operation of a ship or ships if
such foreign country grants an equivalent exemption to
corporations organized in the United States.
(2) Aircraft operated by certain foreign corporations
Gross income derived by a corporation organized in a foreign
country from the international operation of aircraft if such
foreign country grants an equivalent exemption to corporations
organized in the United States.
(3) Railroad rolling stock of foreign corporations
Earnings derived from payments by a common carrier for the use
on a temporary basis (not expected to exceed a total of 90 days
in any taxable year) of railroad rolling stock owned by a
corporation of a foreign country which grants an equivalent
exemption to corporations organized in the United States.
(4) Special rules
The rules of paragraphs (5), (6), and (7) of section 872(b)
shall apply for purposes of this subsection.
(5) Special rule for countries which tax on residence basis
For purposes of this subsection, there shall not be taken into
account any failure of a foreign country to grant an exemption to
a corporation organized in the United States if such corporation
is subject to tax by such foreign country on a residence basis
pursuant to provisions of foreign law which meets such standards
(if any) as the Secretary may prescribe.
(b) Earnings derived from communications satellite system
The earnings derived from the ownership or operation of a
communications satellite system by a foreign entity designated by a
foreign government to participate in such ownership or operation
shall be exempt from taxation under this subtitle, if the United
States, through its designated entity, participates in such system
pursuant to the Communications Satellite Act of 1962 (47 U.S.C. 701
and following).
(c) Treatment of certain foreign corporations
(1) In general
Paragraph (1) or (2) of subsection (a) (as the case may be)
shall not apply to any foreign corporation if 50 percent or more
of the value of the stock of such corporation is owned by
individuals who are not residents of such foreign country or
another foreign country meeting the requirements of such
paragraph.
(2) Treatment of controlled foreign corporations
Paragraph (1) shall not apply to any foreign corporation which
is a controlled foreign corporation (as defined in section
957(a)).
(3) Special rules for publicly traded corporations
(A) Exception
Paragraph (1) shall not apply to any corporation which is
organized in a foreign country meeting the requirements of
paragraph (1) or (2) of subsection (a) (as the case may be) and
the stock of which is primarily and regularly traded on an
established securities market in such foreign country, another
foreign country meeting the requirements of such paragraph, or
the United States.
(B) Treatment of stock owned by publicly traded corporation
Any stock in another corporation which is owned (directly or
indirectly) by a corporation meeting the requirements of
subparagraph (A) shall be treated as owned by individuals who
are residents of the foreign country in which the corporation
meeting the requirements of subparagraph (A) is organized.
(4) Stock ownership through entities
For purposes of paragraph (1), stock owned (directly or
indirectly) by or for a corporation, partnership, trust, or
estate shall be treated as being owned proportionately by its
shareholders, partners, or beneficiaries. Stock considered to be
owned by a person by reason of the application of the preceding
sentence shall, for purposes of applying such sentence, be
treated as actually owned by such person.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 283; Pub. L. 90-622, Sec. 1(a),
Oct. 22, 1968, 82 Stat. 1311; Pub. L. 94-164, Sec. 6(a), Dec. 23,
1975, 89 Stat. 975; Pub. L. 99-514, title XII, Sec. 1212(c)(3)-(5),
Oct. 22, 1986, 100 Stat. 2538; Pub. L. 100-647, title I, Sec.
1012(e)(1), (2)(A), (5), Nov. 10, 1988, 102 Stat. 3499, 3500; Pub.
L. 101-239, title VII, Sec. 7811(i)(8)(D), (10), Dec. 19, 1989, 103
Stat. 2411.)
-REFTEXT-
REFERENCES IN TEXT
The Communications Satellite Act of 1962, referred to in subsec.
(b), is Pub. L. 87-624, Aug. 31, 1962, 76 Stat. 419, as amended,
which is classified generally to chapter 6 (Sec. 701 et seq.) of
Title 47, Telegraphs, Telephones, and Radiotelegraphs. For complete
classification of this Act to the Code, see Short Title note set
out under section 701 of Title 47 and Tables.
-MISC1-
AMENDMENTS
1989 - Subsec. (a)(4). Pub. L. 101-239, Sec. 7811(i)(8)(D),
substituted "(5), (6), and (7)" for "(5) and (6)".
Subsec. (a)(5). Pub. L. 101-239, Sec. 7811(i)(10), added par.
(5).
1988 - Subsec. (a)(1), (2). Pub. L. 100-647, Sec. 1012(e)(2)(A),
(5), struck out "to citizens of the United States and" after
"exemption" and substituted "international operation" for
"operation".
Subsec. (c)(1). Pub. L. 100-647, Sec. 1012(e)(1)(B), substituted
"Paragraph (1) or (2) of subsection (a) (as the case may be)" for
"Paragraphs (1) and (2) of subsection (a)" and "such paragraph" for
"such paragraphs (1) and (2)".
Subsec. (c)(3). Pub. L. 100-647, Sec. 1012(e)(1)(A), substituted
"Special rules" for "Exception" in heading and amended text
generally. Prior to amendment, text read as follows: "Paragraph (1)
shall not apply to any foreign corporation -
"(A) the stock of which is primarily and regularly traded on an
established securities market in the foreign country in which
such corporation is organized, or
"(B) which is wholly owned (either directly or indirectly) by
another corporation meeting the requirements of subparagraph (A)
and is organized in the same foreign country as such other
corporation."
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1212(c)(3), added
par. (1) and struck out former par. (1), ships under foreign flag,
which read as follows: "Earnings derived from the operation of a
ship or ships documented under the laws of a foreign country which
grants an equivalent exemption to citizens of the United States and
to corporations organized in the United States."
Subsec. (a)(2). Pub. L. 99-514, Sec. 1212(c)(3), added par. (2)
and struck out former par. (2), aircraft of foreign registry, which
read as follows: "Earnings derived from the operation of aircraft
registered under the laws of a foreign country which grants an
equivalent exemption to citizens of the United States and to
corporations organized in the United States."
Subsec. (a)(4). Pub. L. 99-514, Sec. 1212(c)(4), added par. (4).
Subsec. (c). Pub. L. 99-514, Sec. 1212(c)(5), added subsec. (c).
1975 - Subsec. (a)(3). Pub. L. 94-164 added par. (3).
1968 - Pub. L. 90-622 designated existing provisions as subsec.
(a), added subsec. (a) heading, and added subsec. (b).
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1212(f) of Pub. L. 99-514, set out
as a note under section 863 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Section 6(b) of Pub. L. 94-164 provided that: "The amendment made
by this section [amending this section] shall apply to payments
made after November 18, 1974."
EFFECTIVE DATE OF 1968 AMENDMENT
Section 1(b) of Pub. L. 90-622 provided that: "The amendment made
by subsection (a) [amending this section] shall apply with respect
to taxable years beginning after December 31, 1966."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1212(c)(3)-(5) of Pub.
L. 99-514 to the extent application of such amendment would be
contrary to any treaty obligation of the United States in effect on
Oct. 22, 1986, with provision that for such purposes any amendment
by title I of Pub. L. 100-647 be treated as if it had been included
in the provision of Pub. L. 99-514 to which such amendment relates,
see section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 884, 887, 953 of this
title.
-End-
-CITE-
26 USC Sec. 884 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
Sec. 884. Branch profits tax
-STATUTE-
(a) Imposition of tax
In addition to the tax imposed by section 882 for any taxable
year, there is hereby imposed on any foreign corporation a tax
equal to 30 percent of the dividend equivalent amount for the
taxable year.
(b) Dividend equivalent amount
For purposes of subsection (a), the term "dividend equivalent
amount" means the foreign corporation's effectively connected
earnings and profits for the taxable year adjusted as provided in
this subsection:
(1) Reduction for increase in U.S. net equity
If -
(A) the U.S. net equity of the foreign corporation as of the
close of the taxable year, exceeds
(B) the U.S. net equity of the foreign corporation as of the
close of the preceding taxable year,
the effectively connected earnings and profits for the taxable
year shall be reduced (but not below zero) by the amount of such
excess.
(2) Increase for decrease in net equity
(A) In general
If -
(i) the U.S. net equity of the foreign corporation as of
the close of the preceding taxable year, exceeds
(ii) the U.S. net equity of the foreign corporation as of
the close of the taxable year,
the effectively connected earnings and profits for the taxable
year shall be increased by the amount of such excess.
(B) Limitation
(i) In general
The increase under subparagraph (A) for any taxable year
shall not exceed the accumulated effectively connected
earnings and profits as of the close of the preceding taxable
year.
(ii) Accumulated effectively connected earnings and profits
For purposes of clause (i), the term "accumulated
effectively connected earnings and profits" means the excess
of -
(I) the aggregate effectively connected earnings and
profits for preceding taxable years beginning after
December 31, 1986, over
(II) the aggregate dividend equivalent amounts determined
for such preceding taxable years.
(c) U.S. net equity
For purposes of this section -
(1) In general
The term "U.S. net equity" means -
(A) U.S. assets, reduced (including below zero) by
(B) U.S. liabilities.
(2) U.S. assets and U.S. liabilities
For purposes of paragraph (1) -
(A) U.S. assets
The term "U.S. assets" means the money and aggregate adjusted
bases of property of the foreign corporation treated as
connected with the conduct of a trade or business in the United
States under regulations prescribed by the Secretary. For
purposes of the preceding sentence, the adjusted basis of any
property shall be its adjusted basis for purposes of computing
earnings and profits.
(B) U.S. liabilities
The term "U.S. liabilities" means the liabilities of the
foreign corporation treated as connected with the conduct of a
trade or business in the United States under regulations
prescribed by the Secretary.
(C) Regulations to be consistent with allocation of deductions
The regulations prescribed under subparagraphs (A) and (B)
shall be consistent with the allocation of deductions under
section 882(c)(1).
(d) Effectively connected earnings and profits
For purposes of this section -
(1) In general
The term "effectively connected earnings and profits" means
earnings and profits (without diminution by reason of any
distributions made during the taxable year) which are
attributable to income which is effectively connected (or treated
as effectively connected) with the conduct of a trade or business
within the United States.
(2) Exception for certain income
The term "effectively connected earnings and profits" shall not
include any earnings and profits attributable to -
(A) income not includible in gross income under paragraph (1)
or (2) of section 883(a),
(B) income treated as effectively connected with the conduct
of a trade or business within the United States under section
921(d) or 926(b),(!1)
(C) gain on the disposition of a United States real property
interest described in section 897(c)(1)(A)(ii),
(D) income treated as effectively connected with the conduct
of a trade or business within the United States under section
953(c)(3)(C), or
(E) income treated as effectively connected with the conduct
of a trade or business within the United States under section
882(e).
Property and liabilities of the foreign corporation treated as
connected with such income under regulations prescribed by the
Secretary shall not be taken into account in determining the U.S.
assets or U.S. liabilities of the foreign corporation.
(e) Coordination with income tax treaties; etc.
(1) Limitation on treaty exemption
No treaty between the United States and a foreign country shall
exempt any foreign corporation from the tax imposed by subsection
(a) (or reduce the amount thereof) unless -
(A) such treaty is an income tax treaty, and
(B) such foreign corporation is a qualified resident of such
foreign country.
(2) Treaty modifications
If a foreign corporation is a qualified resident of a foreign
country with which the United States has an income tax treaty -
(A) the rate of tax under subsection (a) shall be the rate of
tax specified in such treaty -
(i) on branch profits if so specified, or
(ii) if not so specified, on dividends paid by a domestic
corporation to a corporation resident in such country which
wholly owns such domestic corporation, and
(B) any other limitations under such treaty on the tax
imposed by subsection (a) shall apply.
(3) Coordination with withholding tax
(A) In general
If a foreign corporation is subject to the tax imposed by
subsection (a) for any taxable year (determined after the
application of any treaty), no tax shall be imposed by section
871(a), 881(a), 1441, or 1442 on any dividends paid by such
corporation out of its earnings and profits for such taxable
year.
(B) Limitation on certain treaty benefits
If -
(i) any dividend described in section 861(a)(2)(B) is
received by a foreign corporation, and
(ii) subparagraph (A) does not apply to such dividend,
rules similar to the rules of subparagraphs (A) and (B) of
subsection (f)(3) shall apply to such dividend.
(4) Qualified resident
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the term
"qualified resident" means, with respect to any foreign
country, any foreign corporation which is a resident of such
foreign country unless -
(i) 50 percent or more (by value) of the stock of such
foreign corporation is owned (within the meaning of section
883(c)(4)) by individuals who are not residents of such
foreign country and who are not United States citizens or
resident aliens, or
(ii) 50 percent or more of its income is used (directly or
indirectly) to meet liabilities to persons who are not
residents of such foreign country or citizens or residents of
the United States.
(B) Special rule for publicly traded corporations
A foreign corporation which is a resident of a foreign
country shall be treated as a qualified resident of such
foreign country if -
(i) the stock of such corporation is primarily and
regularly traded on an established securities market in such
foreign country, or
(ii) such corporation is wholly owned (either directly or
indirectly) by another foreign corporation which is organized
in such foreign country and the stock of which is so traded.
(C) Corporations owned by publicly traded domestic corporations
A foreign corporation which is a resident of a foreign
country shall be treated as a qualified resident of such
foreign country if -
(i) such corporation is wholly owned (directly or
indirectly) by a domestic corporation, and
(ii) the stock of such domestic corporation is primarily
and regularly traded on an established securities market in
the United States.
(D) Secretarial authority
The Secretary may, in his sole discretion, treat a foreign
corporation as being a qualified resident of a foreign country
if such corporation establishes to the satisfaction of the
Secretary that such corporation meets such requirements as the
Secretary may establish to ensure that individuals who are not
residents of such foreign country do not use the treaty between
such foreign country and the United States in a manner
inconsistent with the purposes of this subsection.
(5) Exception for international organizations
This section shall not apply to an international organization
(as defined in section 7701(a)(18)).
(f) Treatment of interest allocable to effectively connected income
(1) In general
In the case of a foreign corporation engaged in a trade or
business in the United States (or having gross income treated as
effectively connected with the conduct of a trade or business in
the United States), for purposes of this subtitle -
(A) any interest paid by such trade or business in the United
States shall be treated as if it were paid by a domestic
corporation, and
(B) to the extent that the allocable interest exceeds the
interest described in subparagraph (A), such foreign
corporation shall be liable for tax under section 881(a) in the
same manner as if such excess were interest paid to such
foreign corporation by a wholly owned domestic corporation on
the last day of such foreign corporation's taxable year.
To the extent provided in regulations, subparagraph (A) shall not
apply to interest in excess of the amounts reasonably expected to
be allocable interest.
(2) Allocable interest
For purposes of this subsection, the term "allocable interest"
means any interest which is allocable to income which is
effectively connected (or treated as effectively connected) with
the conduct of a trade or business in the United States.
(3) Coordination with treaties
(A) Payor must be qualified resident
In the case of any interest described in paragraph (1) which
is paid or accrued by a foreign corporation, no benefit under
any treaty between the United States and the foreign country of
which such corporation is a resident shall apply unless -
(i) such treaty is an income tax treaty, and
(ii) such foreign corporation is a qualified resident of
such foreign country.
(B) Recipient must be qualified resident
In the case of any interest described in paragraph (1) which
is received or accrued by any corporation, no benefit under any
treaty between the United States and the foreign country of
which such corporation is a resident shall apply unless -
(i) such treaty is an income tax treaty, and
(ii) such foreign corporation is a qualified resident of
such foreign country.
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations providing for appropriate adjustments in the
determination of the dividend equivalent amount in connection with
the distribution to shareholders or transfer to a controlled
corporation of the taxpayer's U.S. assets and other adjustments in
such determination as are necessary or appropriate to carry out the
purposes of this section.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1241(a), Oct. 22, 1986, 100
Stat. 2576; amended Pub. L. 100-647, title I, Sec. 1012(q)(1)(A),
(2)-(6), (14), title VI, Sec. 6133(b), Nov. 10, 1988, 102 Stat.
3522-3525, 3721; Pub. L. 104-188, title I, Sec. 1704(f)(3)(A), Aug.
20, 1996, 110 Stat. 1879.)
-REFTEXT-
REFERENCES IN TEXT
Sections 921 and 926, referred to in subsec. (d)(2)(B), were
repealed by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
-MISC1-
PRIOR PROVISIONS
A prior section 884 was renumbered section 885 of this title.
AMENDMENTS
1996 - Subsec. (f)(1). Pub. L. 104-188, Sec. 1704(f)(3)(A)(ii),
substituted "reasonably expected to be allocable interest" for
"reasonably expected to be deductible under section 882 in
computing the effectively connected taxable income of such foreign
corporation" in closing provisions.
Subsec. (f)(1)(B). Pub. L. 104-188, Sec. 1704(f)(3)(A)(i),
substituted "to the extent that the allocable interest exceeds the
interest described in subparagraph (A)" for "to the extent the
amount of interest allowable as a deduction under section 882 in
computing the effectively connected taxable income of such foreign
corporation exceeds the interest described in subparagraph (A)".
Subsec. (f)(2). Pub. L. 104-188, Sec. 1704(f)(3)(A)(iii), amended
par. (2) generally. Prior to amendment, par. (2) read as follows:
"Effectively connected taxable income. - For purposes of this
subsection, the term 'effectively connected taxable income' means
taxable income which is effectively connected (or treated as
effectively connected) with the conduct of a trade or business
within the United States."
1988 - Subsec. (b)(2)(B). Pub. L. 100-647, Sec. 1012(q)(1)(A),
amended subpar. (B) generally. Prior to amendment, subpar. (B) read
as follows: "The increase under subparagraph (A) for any taxable
year shall not exceed the aggregate reductions under paragraph (1)
for prior taxable years to the extent not previously taken into
account under subparagraph (A)."
Subsec. (d)(2)(E). Pub. L. 100-647, Sec. 6133(b), added subpar.
(E).
Subsec. (e)(1). Pub. L. 100-647, Sec. 1012(q)(2)(A), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: "No
income tax treaty between the United States and a foreign country
shall exempt any foreign corporation from the tax imposed by
subsection (a) (or reduce the amount thereof) unless -
"(A) such foreign corporation is a qualified resident of such
foreign country, or
"(B) such foreign corporation is not a qualified resident of
such foreign country but such income tax treaty permits a
withholding tax on dividends described in section 861(a)(2)(B)
which are paid by such foreign corporation."
Subsec. (e)(3). Pub. L. 100-647, Sec. 1012(q)(2)(B), substituted
"withholding tax" for "2nd tier withholding tax" in heading and
amended text generally. Prior to amendment, text read as follows:
"(A) In general. - If a foreign corporation is not exempt for any
taxable year from the tax imposed by subsection (a) by reason of a
treaty, no tax shall be imposed by section 871(a), 881(a), 1441, or
1442 on any dividends paid by such corporation during the taxable
year.
"(B) Limitation on certain treaty benefits. - No foreign
corporation which is not a qualified resident of a foreign country
shall be entitled to claim benefits under any income tax treaty
between the United States and such foreign country with respect to
dividends -
"(i) which are paid by such foreign corporation and with
respect to which such foreign corporation is otherwise required
to deduct and withhold tax under section 1441 or 1442, or
"(ii) which are received by such foreign corporation and are
described in section 861(a)(2)(B)."
Subsec. (e)(4)(A)(i), (ii). Pub. L. 100-647, Sec. 1012(q)(5),
substituted "50 percent or more" for "more than 50 percent" in cl.
(i) and "citizens or residents of the United States" for "the
United States" in cl. (ii).
Subsec. (e)(4)(C), (D). Pub. L. 100-647, Sec. 1012(q)(4), added
subpar. (C) and redesignated former subpar. (C) as (D).
Subsec. (e)(5). Pub. L. 100-647, Sec. 1012(q)(6), added par. (5).
Subsec. (f)(1). Pub. L. 100-647, Sec. 1012(f)(3)(A), (14),
substituted "this subtitle" for "sections 871, 881, 1441, and 1442"
and inserted "(or having gross income treated as effectively
connected with the conduct of a trade or business in the United
States)" after "United States".
Pub. L. 100-647, Sec. 1012(q)(2)(C)(i), (3)(B), inserted sentence
at end and struck out former last sentence which read as follows:
"Rules similar to the rules of subsection (e)(3)(B) shall apply to
interest described in the preceding sentence."
Subsec. (f)(3). Pub. L. 100-647, Sec. 1012(q)(2)(C)(ii), added
par. (3).
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1704(f)(3)(B) of Pub. L. 104-188 provided that: "The
amendments made by subparagraph (A) [amending this section] shall
take effect as if included in the amendments made by section
1241(a) of the Tax Reform Act of 1986 [Pub. L. 99-514]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1012(q)(1)(A), (2)-(6), (14) of Pub. L.
100-647 effective, except as otherwise provided, as if included in
the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L.
100-647, set out as a note under section 1 of this title.
Amendment by section 6133(b) of Pub. L. 100-647 applicable to
taxable years beginning after Dec. 31, 1988, see section 6133(c) of
Pub. L. 100-647, set out as a note under section 882 of this title.
EFFECTIVE DATE
Section 1241(e) of Pub. L. 99-514 provided that: "The amendments
made by this section [enacting section 884 of this title,
renumbering former section 884 as section 885 of this title, and
amending sections 861 and 906 of this title] shall apply to taxable
years beginning after December 31, 1986."
DETERMINATION OF EARNINGS AND PROFITS OF FOREIGN CORPORATIONS
Section 1012(q)(1)(B) of Pub. L. 100-647, as amended by Pub. L.
101-239, title VII, Sec. 7811(i)(5), Dec. 19, 1989, 103 Stat. 2410,
provided that: "For purposes of applying section 884 of the 1986
Code, the earnings and profits of any corporation shall be
determined without regard to any increase in earnings and profits
under sections 1023(e)(3)(C) [section 1023(e)(3)(C) of Pub. L.
99-514, set out as an Effective Date note under section 846 of this
title] and 1021(c)(2)(C) of the Reform Act [Pub. L. 99-514, set out
as an Effective Date of 1986 Amendment note under section 832 of
this title] or arising from section 832(b)(4)(C) of the 1986 Code."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1241(a) of Pub. L.
99-514 (enacting this section) to the extent application of such
amendment would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 26, 163, 861, 906, 952,
953 of this title; title 48 section 1421i.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 885 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart B - Foreign Corporations
-HEAD-
Sec. 885. Cross references
-STATUTE-
(1) For special provisions relating to foreign corporations
carrying on an insurance business within the United States, see
section 842.
(2) For rules applicable in determining whether any foreign
corporation is engaged in trade or business within the United
States, see section 864(b).
(3) For adjustment of tax in case of corporations of certain
foreign countries, see section 896.
(4) For allowance of credit against the tax in case of a
foreign corporation having income effectively connected with
the conduct of a trade or business within the United States,
see section 906.
(5) For withholding at source of tax on income of foreign
corporations, see section 1442.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 283, Sec. 884; Pub. L. 89-809,
title I, Sec. 104(m)(1), Nov. 13, 1966, 80 Stat. 1563; Pub. L.
91-172, title I, Sec. 101(j)(21), Dec. 30, 1969, 83 Stat. 528;
renumbered Sec. 885, Pub. L. 99-514, title XII, Sec. 1241(a), Oct.
22, 1986, 100 Stat. 2576.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 renumbered section 884 of this title as
this section.
1969 - Pub. L. 91-172 redesignated pars. (2) to (6) as (1) to
(5), respectively. Former par. (1), referring to section 512(a),
was struck out.
1966 - Par. (1). Pub. L. 89-809 redesignated par. (4) as (1).
Former par. (1) redesignated (6).
Par. (2). Pub. L. 89-809 redesignated par. (3) as (2) and
substituted "foreign corporations carrying on an insurance business
within the United States, see section 842" for "foreign insurance
companies, see subchapter L (sec. 801 and following)". Former par.
(2) redesignated (3).
Par. (3). Pub. L. 89-809 redesignated former par. (2) as (3) and,
in par. (3) as so redesignated, substituted "section 864(b)" for
"section 871(c)". Former par. (3) redesignated (2).
Pars. (4), (5). Pub. L. 89-809 added pars. (4) and (5). Former
par. (4) redesignated (1).
Par. (6). Pub. L. 89-809 redesignated former par. (1) as (6).
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning
after Dec. 31, 1969, see section 101(k)(2)(B) of Pub. L. 91-172,
set out as an Effective Date note under section 4940 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
-End-
-CITE-
26 USC Subpart C - Tax on Gross Transportation Income 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart C - Tax on Gross Transportation Income
-HEAD-
SUBPART C - TAX ON GROSS TRANSPORTATION INCOME
-MISC1-
Sec.
887. Imposition of tax on gross transportation income of
nonresident aliens and foreign corporations.
-End-
-CITE-
26 USC Sec. 887 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart C - Tax on Gross Transportation Income
-HEAD-
Sec. 887. Imposition of tax on gross transportation income of
nonresident aliens and foreign corporations
-STATUTE-
(a) Imposition of tax
In the case of any nonresident alien individual or foreign
corporation, there is hereby imposed for each taxable year a tax
equal to 4 percent of such individual's or corporation's United
States source gross transportation income for such taxable year.
(b) United States source gross transportation income
(1) In general
Except as provided in paragraphs (2) and (3), the term "United
States source gross transportation income" means any gross income
which is transportation income (as defined in section 863(c)(3))
to the extent such income is treated as from sources in the
United States under section 863(c)(2). To the extent provided in
regulations, such term does not include any income of a kind to
which an exemption under paragraph (1) or (2) of section 883(a)
would not apply.
(2) Exception for certain income effectively connected with
business in the United States
The term "United States source gross transportation income"
shall not include any income taxable under section 871(b) or 882.
(3) Exception for certain income taxable in possessions
The term "United States source gross transportation income"
does not include any income taxable in a possession of the United
States under the provisions of this title as made applicable in
such possession.
(4) Determination of effectively connected income
For purposes of this chapter, United States source gross
transportation income of any taxpayer shall not be treated as
effectively connected with the conduct of a trade or business in
the United States unless -
(A) the taxpayer has a fixed place of business in the United
States involved in the earning of United States source gross
transportation income, and
(B) substantially all of the United States source gross
transportation income (determined without regard to paragraph
(2)) of the taxpayer is attributable to regularly scheduled
transportation (or, in the case of income from the leasing of a
vessel or aircraft, is attributable to a fixed place of
business in the United States).
(c) Coordination with other provisions
Any income taxable under this section shall not be taxable under
section 871, 881, or 882.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1212(b)(1), Oct. 22, 1986,
100 Stat. 2537; amended Pub. L. 100-647, title I, Sec. 1012(e)(6),
Nov. 10, 1988, 102 Stat. 3500; Pub. L. 101-239, title VII, Sec.
7811(i)(8)(A), (B), (9), Dec. 19, 1989, 103 Stat. 2410, 2411.)
-MISC1-
AMENDMENTS
1989 - Subsec. (b)(1). Pub. L. 101-239, Sec. 7811(i)(8)(B),
substituted "paragraphs (2) and (3)" for "paragraph (2)".
Subsec. (b)(3). Pub. L. 101-239, Sec. 7811(i)(8)(A), added par.
(3). Former par. (3) redesignated (4).
Subsec. (b)(4). Pub. L. 101-239, Sec. 7811(i)(8)(A), (9),
redesignated former par. (3) as (4) and substituted "United States
source gross transportation income" for "transportation income" in
introductory provisions and in subpar. (A).
1988 - Subsec. (b)(1). Pub. L. 100-647 substituted "under section
863(c)(2)" for "under section 863(c)" and inserted at end "To the
extent provided in regulations, such term does not include any
income of a kind to which an exemption under paragraph (1) or (2)
of section 883(a) would not apply."
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, see section 1212(f) of Pub. L. 99-514, set out as an
Effective Date of 1986 Amendment note under section 863 of this
title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1212(b)(1) of Pub. L.
99-514 (enacting this section) to the extent application of such
amendment would be contrary to any treaty obligation of the United
States in effect on Oct. 22, 1986, with provision that for such
purposes any amendment by title I of Pub. L. 100-647 be treated as
if it had been included in the provision of Pub. L. 99-514 to which
such amendment relates, see section 1012(aa)(3), (4) of Pub. L.
100-647, set out as a note under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 6655 of this title.
-End-
-CITE-
26 USC Subpart D - Miscellaneous Provisions 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
SUBPART D - MISCELLANEOUS PROVISIONS
-MISC1-
Sec.
891. Doubling of rates of tax on citizens and corporations
of certain foreign countries.
892. Income of foreign governments and of international
organizations.
893. Compensation of employees of foreign governments or
international organizations.
894. Income affected by treaty.
895. Income derived by a foreign central bank of issue from
obligations of the United States or from bank
deposits.
896. Adjustment of tax on nationals, residents, and
corporations of certain foreign countries.
897. Disposition of investment in United States real
property.
898. Taxable year of certain foreign corporations.
AMENDMENTS
1989 - Pub. L. 101-239, title VII, Sec. 7401(c), Dec. 19, 1989,
103 Stat. 2357, added item 898.
1986 - Pub. L. 99-514, title XII, Sec. 1212(b)(1), Oct. 22, 1986,
100 Stat. 2537, redesignated former subpart (C) as (D).
1980 - Pub. L. 96-499, title XI, Sec. 1122(b), Dec. 5, 1980, 94
Stat. 2687, added item 897.
1966 - Pub. L. 89-809, title I, Secs. 102(a)(4)(B), 105(c), Nov.
13, 1966, 80 Stat. 1543, 1565, substituted "affected by treaty" for
"exempt under treaty" in item 894, inserted "or from bank deposits"
in item 895, and added item 896.
1961 - Pub. L. 87-29, Sec. 1(b), May 4, 1961, 75 Stat. 64, added
item 895.
-End-
-CITE-
26 USC Sec. 891 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 891. Doubling of rates of tax on citizens and corporations of
certain foreign countries
-STATUTE-
Whenever the President finds that, under the laws of any foreign
country, citizens or corporations of the United States are being
subjected to discriminatory or extraterritorial taxes, the
President shall so proclaim and the rates of tax imposed by
sections 1, 3, 11, 801, 831, 852, 871, and 881 shall, for the
taxable year during which such proclamation is made and for each
taxable year thereafter, be doubled in the case of each citizen and
corporation of such foreign country; but the tax at such doubled
rate shall be considered as imposed by such sections as the case
may be. In no case shall this section operate to increase the taxes
imposed by such sections (computed without regard to this section)
to an amount in excess of 80 percent of the taxable income of the
taxpayer (computed without regard to the deductions allowable under
section 151 and under part VIII of subchapter B). Whenever the
President finds that the laws of any foreign country with respect
to which the President has made a proclamation under the preceding
provisions of this section have been modified so that
discriminatory and extraterritorial taxes applicable to citizens
and corporations of the United States have been removed, he shall
so proclaim, and the provisions of this section providing for
doubled rates of tax shall not apply to any citizen or corporation
of such foreign country with respect to any taxable year beginning
after such proclamation is made.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 283; Mar. 13, 1956, ch. 83, Sec.
5(6), 70 Stat. 49; Pub. L. 86-69, Sec. 3(f)(1), June 25, 1959, 73
Stat. 140; Pub. L. 98-369, div. A, title II, Sec. 211(b)(12), July
18, 1984, 98 Stat. 755; Pub. L. 99-514, title X, Sec. 1024(c)(13),
Oct. 22, 1986, 100 Stat. 2408.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 struck out reference to section 821.
1984 - Pub. L. 98-369 substituted "801" for "802".
1959 - Pub. L. 86-69 struck out reference to section 811.
1956 - Act Mar. 13, 1956, inserted reference to section 811.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out
as a note under section 831 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1959 AMENDMENT
Amendment by Pub. L. 86-69 applicable only with respect to
taxable years beginning after Dec. 31, 1957, see section 4 of Pub.
L. 86-69, set out an Effective Date note under section 381 of this
title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 5, 12, 881 of this title.
-End-
-CITE-
26 USC Sec. 892 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 892. Income of foreign governments and of international
organizations
-STATUTE-
(a) Foreign governments
(1) In general
The income of foreign governments received from -
(A) investments in the United States in -
(i) stocks, bonds, or other domestic securities owned by
such foreign governments, or
(ii) financial instruments held in the execution of
governmental financial or monetary policy, or
(B) interest on deposits in banks in the United States of
moneys belonging to such foreign governments,
shall not be included in gross income and shall be exempt from
taxation under this subtitle.
(2) Income received directly or indirectly from commercial
activities
(A) In general
Paragraph (1) shall not apply to any income -
(i) derived from the conduct of any commercial activity
(whether within or outside the United States),
(ii) received by a controlled commercial entity or received
(directly or indirectly) from a controlled commercial entity,
or
(iii) derived from the disposition of any interest in a
controlled commercial entity.
(B) Controlled commercial entity
For purposes of subparagraph (A), the term "controlled
commercial entity" means any entity engaged in commercial
activities (whether within or outside the United States) if the
government -
(i) holds (directly or indirectly) any interest in such
entity which (by value or voting interest) is 50 percent or
more of the total of such interests in such entity, or
(ii) holds (directly or indirectly) any other interest in
such entity which provides the foreign government with
effective control of such entity.
For purposes of the preceding sentence, a central bank of issue
shall be treated as a controlled commercial entity only if
engaged in commercial activities within the United States.
(3) Treatment as resident
For purposes of this title, a foreign government shall be
treated as a corporate resident of its country. A foreign
government shall be so treated for purposes of any income tax
treaty obligation of the United States if such government grants
equivalent treatment to the Government of the United States.
(b) International organizations
The income of international organizations received from
investments in the United States in stocks, bonds, or other
domestic securities owned by such international organizations, or
from interest on deposits in banks in the United States of moneys
belonging to such international organizations, or from any other
source within the United States, shall not be included in gross
income and shall be exempt from taxation under this subtitle.
(c) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 284; Pub. L. 99-514, title XII,
Sec. 1247(a), Oct. 22, 1986, 100 Stat. 2583; Pub. L. 100-647, title
I, Sec. 1012(t)(1)-(3), Nov. 10, 1988, 102 Stat. 3527; Pub. L.
101-508, title XI, Sec. 11704(a)(35), Nov. 5, 1990, 104 Stat.
1388-519.)
-MISC1-
AMENDMENTS
1990 - Subsec. (a)(2)(A). Pub. L. 101-508 made clarifying
amendment to Pub. L. 100-647, Sec. 1012(t)(1). See 1988 Amendment
note below.
1988 - Subsec. (a)(2)(A). Pub. L. 100-647, Sec. 1012(t)(1), (2),
as amended by Pub. L. 101-508, amended cl. (ii) generally and added
cl. (iii). Prior to amendment, cl. (ii) read as follows: "received
from or by a controlled commercial entity."
Subsec. (a)(3). Pub. L. 100-647, Sec. 1012(t)(3), added par. (3).
1986 - Pub. L. 99-514 amended section generally. Prior to
amendment, section read as follows: "The income of foreign
governments or international organizations received from
investments in the United States in stocks, bonds, or other
domestic securities, owned by such foreign governments or by
international organizations, or from interest on deposits in banks
in the United States of moneys belonging to such foreign
governments or international organizations, or from any other
source within the United States, shall not be included in gross
income and shall be exempt from taxation under this subtitle."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1247(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
amounts received on or after July 1, 1986, except that no amount
shall be required to be deducted and withheld by reason of the
amendment made by subsection (a) from any payment made before the
date of the enactment of this Act [Oct. 22, 1986]."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For nonapplication of amendment by section 1247(a) of Pub. L.
99-514 to the extent application of such amendment would be
contrary to any treaty obligation of the United States in effect on
Oct. 22, 1986, with provision that for such purposes any amendment
by title I of Pub. L. 100-647 be treated as if it had been included
in the provision of Pub. L. 99-514 to which such amendment relates,
see section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 893 of this title.
-End-
-CITE-
26 USC Sec. 893 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 893. Compensation of employees of foreign governments or
international organizations
-STATUTE-
(a) Rule for exclusion
Wages, fees, or salary of any employee of a foreign government or
of an international organization (including a consular or other
officer, or a nondiplomatic representative), received as
compensation for official services to such government or
international organization shall not be included in gross income
and shall be exempt from taxation under this subtitle if -
(1) such employee is not a citizen of the United States, or is
a citizen of the Republic of the Philippines (whether or not a
citizen of the United States); and
(2) in the case of an employee of a foreign government, the
services are of a character similar to those performed by
employees of the Government of the United States in foreign
countries; and
(3) in the case of an employee of a foreign government, the
foreign government grants an equivalent exemption to employees of
the Government of the United States performing similar services
in such foreign country.
(b) Certificate by Secretary of State
The Secretary of State shall certify to the Secretary of the
Treasury the names of the foreign countries which grant an
equivalent exemption to the employees of the Government of the
United States performing services in such foreign countries, and
the character of the services performed by employees of the
Government of the United States in foreign countries.
(c) Limitation on exclusion
Subsection (a) shall not apply to -
(1) any employee of a controlled commercial entity (as defined
in section 892(a)(2)(B)), or
(2) any employee of a foreign government whose services are
primarily in connection with a commercial activity (whether
within or outside the United States) of the foreign government.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 284; Pub. L. 100-647, title I,
Sec. 1012(t)(4), Nov. 10, 1988, 102 Stat. 3527.)
-MISC1-
AMENDMENTS
1988 - Subsec. (c). Pub. L. 100-647 added subsec. (c).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
-End-
-CITE-
26 USC Sec. 894 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 894. Income affected by treaty
-STATUTE-
(a) Treaty provisions
(1) In general
The provisions of this title shall be applied to any taxpayer
with due regard to any treaty obligation of the United States
which applies to such taxpayer.
(2) Cross reference
For relationship between treaties and this title, see section
7852(d).
(b) Permanent establishment in United States
For purposes of applying any exemption from, or reduction of, any
tax provided by any treaty to which the United States is a party
with respect to income which is not effectively connected with the
conduct of a trade or business within the United States, a
nonresident alien individual or a foreign corporation shall be
deemed not to have a permanent establishment in the United States
at any time during the taxable year. This subsection shall not
apply in respect of the tax computed under section 877(b).
(c) Denial of treaty benefits for certain payments through hybrid
entities
(1) Application to certain payments
A foreign person shall not be entitled under any income tax
treaty of the United States with a foreign country to any reduced
rate of any withholding tax imposed by this title on an item of
income derived through an entity which is treated as a
partnership (or is otherwise treated as fiscally transparent) for
purposes of this title if -
(A) such item is not treated for purposes of the taxation
laws of such foreign country as an item of income of such
person,
(B) the treaty does not contain a provision addressing the
applicability of the treaty in the case of an item of income
derived through a partnership, and
(C) the foreign country does not impose tax on a distribution
of such item of income from such entity to such person.
(2) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to determine the extent to which a
taxpayer to which paragraph (1) does not apply shall not be
entitled to benefits under any income tax treaty of the United
States with respect to any payment received by, or income
attributable to any activities of, an entity organized in any
jurisdiction (including the United States) that is treated as a
partnership or is otherwise treated as fiscally transparent for
purposes of this title (including a common investment trust under
section 584, a grantor trust, or an entity that is disregarded
for purposes of this title) and is treated as fiscally
nontransparent for purposes of the tax laws of the jurisdiction
of residence of the taxpayer.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 284; Pub. L. 89-809, title I,
Sec. 105(a), Nov. 13, 1966, 80 Stat. 1563; Pub. L. 100-647, title
I, Sec. 1012(aa)(6), Nov. 10, 1988, 102 Stat. 3533; Pub. L. 105-34,
title X, Sec. 1054(a), Aug. 5, 1997, 111 Stat. 943.)
-MISC1-
AMENDMENTS
1997 - Subsec. (c). Pub. L. 105-34 added subsec. (c).
1988 - Subsec. (a). Pub. L. 100-647 substituted "Treaty
provisions" for "Income affected by treaty" in heading and amended
text generally. Prior to amendment, text read as follows: "Income
of any kind, to the extent required by any treaty obligation of the
United States, shall not be included in gross income and shall be
exempt from taxation under this subtitle."
1966 - Pub. L. 89-809 designated existing provisions as subsec.
(a), added subsec. (b), and substituted "affected by treaty" for
"exempt under treaty" in section catchline.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1054(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply upon the
date of enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 105(d) of Pub. L. 89-809 provided that: "The amendments
made by this section (other than subsections (d) and (f)) [amending
this section and enacting section 896 of this title] shall apply
with respect to taxable years beginning after December 31, 1966."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 269B, 643, 842 of this
title.
-End-
-CITE-
26 USC Sec. 895 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 895. Income derived by a foreign central bank of issue from
obligations of the United States or from bank deposits
-STATUTE-
Income derived by a foreign central bank of issue from
obligations of the United States or of any agency or
instrumentality thereof (including beneficial interests,
participations, and other instruments issued under section 302(c)
of the Federal National Mortgage Association Charter Act (12 U.S.C.
1717)) which are owned by such foreign central bank of issue, or
derived from interest on deposits with persons carrying on the
banking business, shall not be included in gross income and shall
be exempt from taxation under this subtitle unless such obligations
or deposits are held for, or used in connection with, the conduct
of commercial banking functions or other commercial activities. For
purposes of the preceding sentence the Bank for International
Settlements shall be treated as a foreign central bank of issue.
-SOURCE-
(Added Pub. L. 87-29, Sec. 1(a), May 4, 1961, 75 Stat. 64; amended
Pub. L. 89-809, title I, Sec. 102(a)(4)(A), Nov. 13, 1966, 80 Stat.
1543.)
-MISC1-
AMENDMENTS
1966 - Pub. L. 89-809 exempted income derived from obligations of
agencies or instrumentalities of the United States and income
derived from interest on deposits with persons carrying on the
banking business, inserted "(including beneficial interests,
participations, and other instruments issued under section 302(c)
of the Federal National Mortgage Association Charter Act (12 U.S.C.
1717))," and inserted sentence requiring the Bank for International
Settlements to be treated as a foreign central bank of issue.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, except that in applying
section 864(c)(4)(B)(iii) of this title with respect to a binding
contract entered into on or before Feb. 24, 1966, activities in the
United States on or before such date in negotiating or carrying out
such contract shall not be taken into account, see section
102(e)(1) of Pub. L. 89-809, set out as a note under section 861 of
this title.
EFFECTIVE DATE
Section 1(c) of Pub. L. 87-29 provided that: "The amendments made
by subsections (a) and (b) [enacting this section and amending
analysis preceding section 891 of this title] shall be effective
with respect to income received in taxable years beginning after
December 31, 1960."
-End-
-CITE-
26 USC Sec. 896 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 896. Adjustment of tax on nationals, residents, and
corporations of certain foreign countries
-STATUTE-
(a) Imposition of more burdensome taxes by foreign country
Whenever the President finds that -
(1) under the laws of any foreign country, considering the tax
system of such foreign country, citizens of the United States not
residents of such foreign country or domestic corporations are
being subjected to more burdensome taxes, on any item of income
received by such citizens or corporations from sources within
such foreign country, than taxes imposed by the provisions of
this subtitle on similar income derived from sources within the
United States by residents or corporations of such foreign
country,
(2) such foreign country, when requested by the United States
to do so, has not acted to revise or reduce such taxes so that
they are no more burdensome than taxes imposed by the provisions
of this subtitle on similar income derived from sources within
the United States by residents or corporations of such foreign
country, and
(3) it is in the public interest to apply pre-1967 tax
provisions in accordance with the provisions of this subsection
to residents or corporations of such foreign country,
the President shall proclaim that the tax on such similar income
derived from sources within the United States by residents or
corporations of such foreign country shall, for taxable years
beginning after such proclamation, be determined under this
subtitle without regard to amendments made to this subchapter and
chapter 3 on or after the date of enactment of this section.
(b) Imposition of discriminatory taxes by foreign country
Whenever the President finds that -
(1) under the laws of any foreign country, citizens of the
United States or domestic corporations (or any class of such
citizens or corporations) are, with respect to any item of
income, being subjected to a higher effective rate of tax than
are nationals, residents, or corporations of such foreign country
(or a similar class of such nationals, residents, or
corporations) under similar circumstances;
(2) such foreign country, when requested by the United States
to do so, has not acted to eliminate such higher effective rate
of tax; and
(3) it is in the public interest to adjust, in accordance with
the provisions of this subsection, the effective rate of tax
imposed by this subtitle on similar income of nationals,
residents, or corporations of such foreign country (or such
similar class of such nationals, residents, or corporations),
the President shall proclaim that the tax on similar income of
nationals, residents, or corporations of such foreign country (or
such similar class of such nationals, residents, or corporations)
shall, for taxable years beginning after such proclamation, be
adjusted so as to cause the effective rate of tax imposed by this
subtitle on such similar income to be substantially equal to the
effective rate of tax imposed by such foreign country on such item
of income of citizens of the United States or domestic corporations
(or such class of citizens or corporations). In implementing a
proclamation made under this subsection, the effective rate of tax
imposed by this subtitle on an item of income may be adjusted by
the disallowance, in whole or in part, of any deduction, credit, or
exemption which would otherwise be allowed with respect to that
item of income or by increasing the rate of tax otherwise
applicable to that item of income.
(c) Alleviation of more burdensome or discriminatory taxes
Whenever the President finds that -
(1) the laws of any foreign country with respect to which the
President has made a proclamation under subsection (a) have been
modified so that citizens of the United States not residents of
such foreign country or domestic corporations are no longer
subject to more burdensome taxes on the item of income derived by
such citizens or corporations from sources within such foreign
country, or
(2) the laws of any foreign country with respect to which the
President has made a proclamation under subsection (b) have been
modified so that citizens of the United States or domestic
corporations (or any class of such citizens or corporations) are
no longer subject to a higher effective rate of tax on the item
of income,
he shall proclaim that the tax imposed by this subtitle on the
similar income of nationals, residents, or corporations of such
foreign country shall, for any taxable year beginning after such
proclamation, be determined under this subtitle without regard to
such subsection.
(d) Notification of Congress required
No proclamation shall be issued by the President pursuant to this
section unless, at least 30 days prior to such proclamation, he has
notified the Senate and the House of Representatives of his
intention to issue such proclamation.
(e) Implementation by regulations
The Secretary shall prescribe such regulations as he deems
necessary or appropriate to implement this section.
-SOURCE-
(Added Pub. L. 89-809, title I, Sec. 105(b), Nov. 13, 1966, 80
Stat. 1563; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834.)
-REFTEXT-
REFERENCES IN TEXT
The date of enactment of this section, referred to in the
provisions following subsec. (a)(3), is the date of enactment of
Pub. L. 89-809, which was approved Nov. 13, 1966.
-MISC1-
AMENDMENTS
1976 - Subsec. (e). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE
Section applicable with respect to taxable years beginning after
Dec. 31, 1966, see section 105(d) of Pub. L. 89-809, set out as an
Effective Date of 1966 Amendment note under section 894 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 885 of this title.
-End-
-CITE-
26 USC Sec. 897 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 897. Disposition of investment in United States real property
-STATUTE-
(a) General rule
(1) Treatment as effectively connected with United States trade
or business
For purposes of this title, gain or loss of a nonresident alien
individual or a foreign corporation from the disposition of a
United States real property interest shall be taken into account
-
(A) in the case of a nonresident alien individual, under
section 871(B)(1), or
(B) in the case of a foreign corporation, under section
882(a)(1),
as if the taxpayer were engaged in a trade or business within the
United States during the taxable year and as if such gain or loss
were effectively connected with such trade or business.
(2) Minimum tax on nonresident alien individuals
(A) In general
In the case of any nonresident alien individual, the taxable
excess for purposes of section 55(b)(1)(A) shall not be less
than the lesser of -
(i) the individual's alternative minimum taxable income (as
defined in section 55(b)(2)) for the taxable year, or
(ii) the individual's net United States real property gain
for the taxable year.
(B) Net United States real property gain
For purposes of subparagraph (A), the term "net United States
real property gain" means the excess of -
(i) the aggregate of the gains for the taxable year from
dispositions of United States real property interests, over
(ii) the aggregate of the losses for the taxable year from
dispositions of such interests.
(b) Limitation on losses of individuals
In the case of an individual, a loss shall be taken into account
under subsection (a) only to the extent such loss would be taken
into account under section 165(c) (determined without regard to
subsection (a) of this section).
(c) United States real property interest
For purposes of this section -
(1) United States real property interest
(A) In general
Except as provided in subparagraph (B), the term "United
States real property interest" means -
(i) an interest in real property (including an interest in
a mine, well, or other natural deposit) located in the United
States or the Virgin Islands, and
(ii) any interest (other than an interest solely as a
creditor) in any domestic corporation unless the taxpayer
establishes (at such time and in such manner as the Secretary
by regulations prescribes) that such corporation was at no
time a United States real property holding corporation during
the shorter of -
(I) the period after June 18, 1980, during which the
taxpayer held such interest, or
(II) the 5-year period ending on the date of the
disposition of such interest.
(B) Exclusion for interest in certain corporations
The term "United States real property interest" does not
include any interest in a corporation if -
(i) as of the date of the disposition of such interest,
such corporation did not hold any United States real property
interests, and
(ii) all of the United States real property interests held
by such corporation at any time during the shorter of the
periods described in subparagraph (A)(ii) -
(I) were disposed of in transactions in which the full
amount of the gain (if any) was recognized, or
(II) ceased to be United States real property interests
by reason of the application of this subparagraph to 1 or
more other corporations.
(2) United States real property holding corporation
The term "United States real property holding corporation"
means any corporation if -
(A) the fair market value of its United States real property
interests equals or exceeds 50 percent of
(B) the fair market value of -
(i) its United States real property interests,
(ii) its interests in real property located outside the
United States, plus
(iii) any other of its assets which are used or held for
use in a trade or business.
(3) Exception for stock regularly traded on established
securities markets
If any class of stock of a corporation is regularly traded on
an established securities market, stock of such class shall be
treated as a United States real property interest only in the
case of a person who, at some time during the shorter of the
periods described in paragraph (1)(A)(ii), held more than 5
percent of such class of stock.
(4) Interests held by foreign corporations and by partnerships,
trusts, and estates
For purposes of determining whether any corporation is a United
States real property holding corporation -
(A) Foreign corporations
Paragraph (1)(A)(ii) shall be applied by substituting "any
corporation (whether foreign or domestic)" for "any domestic
corporation".
(B) Interests held by partnerships, etc.
Under regulations prescribed by the Secretary, assets held by
a partnership, trust, or estate shall be treated as held
proportionately by its partners or beneficiaries. Any asset
treated as held by a partner or beneficiary by reason of this
subparagraph which is used or held for use by the partnership,
trust, or estate in a trade or business shall be treated as so
used or held by the partner or beneficiary. Any asset treated
as held by a partner or beneficiary by reason of this
subparagraph shall be so treated for purposes of applying this
subparagraph successively to partnerships, trusts, or estates
which are above the first partnership, trust, or estate in a
chain thereof.
(5) Treatment of controlling interests
(A) In general
Under regulations, for purposes of determining whether any
corporation is a United States real property holding
corporation, if any corporation (hereinafter in this paragraph
referred to as the "first corporation") holds a controlling
interest in a second corporation -
(i) the stock which the first corporation holds in the
second corporation shall not be taken into account,
(ii) the first corporation shall be treated as holding a
portion of each asset of the second corporation equal to the
percentage of the fair market value of the stock of the
second corporation represented by the stock held by the first
corporation, and
(iii) any asset treated as held by the first corporation by
reason of clause (ii) which is used or held for use by the
second corporation in a trade or business shall be treated as
so used or held by the first corporation.
Any asset treated as held by the first corporation by reason of
the preceding sentence shall be so treated for purposes of
applying the preceding sentence successively to corporations
which are above the first corporation in a chain of
corporations.
(B) Controlling interest
For purposes of subparagraph (A), the term "controlling
interest" means 50 percent or more of the fair market value of
all classes of stock of a corporation.
(6) Other special rules
(A) Interest in real property
The term "interest in real property" includes fee ownership
and co-ownership of land or improvements thereon, leaseholds of
land or improvements thereon, options to acquire land or
improvements thereon, and options to acquire leaseholds of land
or improvements thereon.
(B) Real property includes associated personal property
The term "real property" includes movable walls, furnishings,
and other personal property associated with the use of the real
property.
(C) Constructive ownership rules
For purposes of determining under paragraph (3) whether any
person holds more than 5 percent of any class of stock and of
determining under paragraph (5) whether a person holds a
controlling interest in any corporation, section 318(a) shall
apply (except that paragraphs (2)(C) and (3)(C) of section
318(a) shall be applied by substituting "5 percent" for "50
percent").
(d) Treatment of distributions by foreign corporations
(1) In general
Except to the extent otherwise provided in regulations,
notwithstanding any other provision of this chapter, gain shall
be recognized by a foreign corporation on the distribution
(including a distribution in liquidation or redemption) of a
United States real property interest in an amount equal to the
excess of the fair market value of such interest (as of the time
of the distribution) over its adjusted basis.
(2) Exceptions
Gain shall not be recognized under paragraph (1) -
(A) if -
(i) at the time of the receipt of the distributed property,
the distributee would be subject to taxation under this
chapter on a subsequent disposition of the distributed
property, and
(ii) the basis of the distributed property in the hands of
the distributee is no greater than the adjusted basis of such
property before the distribution, increased by the amount of
gain (if any) recognized by the distributing corporation, or
(B) if such nonrecognition is provided in regulations
prescribed by the Secretary under subsection (e)(2).
(e) Coordination with nonrecognition provisions
(1) In general
Except to the extent otherwise provided in subsection (d) and
paragraph (2) of this subsection, any nonrecognition provision
shall apply for purposes of this section to a transaction only in
the case of an exchange of a United States real property interest
for an interest the sale of which would be subject to taxation
under this chapter.
(2) Regulations
The Secretary shall prescribe regulations (which are necessary
or appropriate to prevent the avoidance of Federal income taxes)
providing -
(A) the extent to which nonrecognition provisions shall, and
shall not, apply for purposes of this section, and
(B) the extent to which -
(i) transfers of property in reorganization, and
(ii) changes in interests in, or distributions from, a
partnership, trust, or estate,
shall be treated as sales of property at fair market value.
(3) Nonrecognition provision defined
For purposes of this subsection, the term "nonrecognition
provision" means any provision of this title for not recognizing
gain or loss.
[(f) Repealed. Pub. L. 104-188, title I, Sec. 1702(g)(2), Aug. 20,
1996, 110 Stat. 1873]
(g) Special rule for sales of interest in partnerships, trusts, and
estates
Under regulations prescribed by the Secretary, the amount of any
money, and the fair market value of any property, received by a
nonresident alien individual or foreign corporation in exchange for
all or part of its interest in a partnership, trust, or estate
shall, to the extent attributable to United States real property
interests, be considered as an amount received from the sale or
exchange in the United States of such property.
(h) Special rules for REITS
For purposes of this section -
(1) Look-through of distributions
Any distribution by a REIT to a nonresident alien individual or
a foreign corporation shall, to the extent attributable to gain
from sales or exchanges by the REIT of United States real
property interests, be treated as gain recognized by such
nonresident alien individual or foreign corporation from the sale
or exchange of a United States real property interest.
(2) Sale of stock in domestically-controlled REIT not taxed
The term "United States real property interest" does not
include any interest in a domestically-controlled REIT.
(3) Distributions by domestically-controlled REITS
In the case of a domestically-controlled REIT, rules similar to
the rules of subsection (d) shall apply to the foreign ownership
percentage of any gain.
(4) Definitions
(A) REIT
The term "REIT" means a real estate investment trust.
(B) Domestically-controlled REIT
The term "domestically-controlled REIT" means a REIT in which
at all times during the testing period less than 50 percent in
value of the stock was held directly or indirectly by foreign
persons.
(C) Foreign ownership percentage
The term "foreign ownership percentage" means that percentage
of the stock of the REIT which was held (directly or
indirectly) by foreign persons at the time during the testing
period during which the direct and indirect ownership of stock
by foreign persons was greatest.
(D) Testing period
The term "testing period" means whichever of the following
periods is the shortest:
(i) the period beginning on June 19, 1980, and ending on
the date of the disposition or of the distribution, as the
case may be,
(ii) the 5-year period ending on the date of the
disposition or of the distribution, as the case may be, or
(iii) the period during which the REIT was in existence.
(i) Election by foreign corporation to be treated as domestic
corporation
(1) In general
If -
(A) a foreign corporation holds a United States real property
interest, and
(B) under any treaty obligation of the United States the
foreign corporation is entitled to nondiscriminatory treatment
with respect to that interest,
then such foreign corporation may make an election to be treated
as a domestic corporation for purposes of this section, section
1445, and section 6039C.
(2) Revocation only with consent
Any election under paragraph (1), once made, may be revoked
only with the consent of the Secretary.
(3) Making of election
An election under paragraph (1) may be made only -
(A) if all of the owners of all classes of interests (other
than interests solely as a creditor) in the foreign corporation
at the time of the election consent to the making of the
election and agree that gain, if any, from the disposition of
such interest after June 18, 1980, which would be taken into
account under subsection (a) shall be taxable notwithstanding
any provision to the contrary in a treaty to which the United
States is a party, and
(B) subject to such other conditions as the Secretary may
prescribe by regulations with respect to the corporation or its
shareholders.
In the case of a class of interest (other than an interest solely
as a creditor) which is regularly traded on an established
securities market, the consent described in subparagraph (A) need
only be made by any person if such person held more than 5
percent of such class of interest at some time during the shorter
of the periods described in subsection (c)(1)(A)(ii). The
constructive ownership rules of subsection (c)(6)(C) shall apply
in determining whether a person held more than 5 percent of a
class of interest.
(4) Exclusive method of claiming nondiscrimination
The election provided by paragraph (1) shall be the exclusive
remedy for any person claiming discriminatory treatment with
respect to this section, section 1145, and section 6039C.
(j) Certain contributions to capital
Except to the extent otherwise provided in regulations, gain
shall be recognized by a nonresident alien individual or foreign
corporation on the transfer of a United States real property
interest to a foreign corporation if the transfer is made as paid
in surplus or as a contribution to capital, in the amount of the
excess of -
(1) the fair market value of such property transferred, over
(2) the sum of -
(A) the adjusted basis of such property in the hands of the
transferor, plus
(B) the amount of gain, if any, recognized to the transferor
under any other provision at the time of the transfer.
-SOURCE-
(Added Pub. L. 96-499, title XI, Sec. 1122(a), Dec. 5, 1980, 94
Stat. 2682; amended Pub. L. 97-34, title VIII, Sec. 831(a)(1),
(b)-(d), (f), (g), Aug. 13, 1981, 95 Stat. 352-354; Pub. L. 97-248,
title II, Sec. 201(d)(6), formerly Sec. 201(c)(6), Sept. 3, 1982,
96 Stat. 419, renumbered Sec. 201(d)(6), Pub. L. 97-448, title III,
Sec. 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 99-514,
title VI, Sec. 631(e)(12), title VII, Sec. 701(e)(4)(G), title
XVIII, Sec. 1810(f)(1), Oct. 22, 1986, 100 Stat. 2275, 2343, 2826;
Pub. L. 100-647, title I, Sec. 1006(e)(19), Nov. 10, 1988, 102
Stat. 3403; Pub. L. 101-508, title XI, Sec. 11801(a)(30), Nov. 5,
1990, 104 Stat. 1388-521; Pub. L. 103-66, title XIII, Sec.
13203(c)(2), Aug. 10, 1993, 107 Stat. 462; Pub. L. 104-188, title
I, Sec. 1702(g)(2), Aug. 20, 1996, 110 Stat. 1873.)
-MISC1-
AMENDMENTS
1996 - Subsec. (f). Pub. L. 104-188 struck out subsec. (f) which
read as follows:
"(f) Distributions by Domestic Corporations to Foreign
Shareholders. - If a domestic corporation distributes a United
States real property interest to a nonresident alien individual or
a foreign corporation in a distribution to which section 301
applies, notwithstanding any other provision of this chapter, the
basis of such United States real property interest in the hands of
such nonresident alien individual or foreign corporation shall not
exceed -
"(1) the adjusted basis of such property before the
distribution, increased by
"(2) the sum of -
"(A) any gain recognized by the distributing corporation on
the distribution, and
"(B) any tax paid under this chapter by the distributee on
such distribution."
1993 - Subsec. (a)(2). Pub. L. 103-66 substituted "Minimum" for
"21-percent minimum" in heading and "the taxable excess for
purposes of section 55(b)(1)(A) shall not be less than" for "the
amount determined under section 55(b)(1)(A) shall not be less than
21 percent of" in subpar. (A).
1990 - Subsec. (k). Pub. L. 101-508 struck out subsec. (k) which
read as follows: "If -
"(1) a foreign corporation adopts, or has adopted, a plan of
liquidation described in section 334(b)(2)(A), and
"(2) the 12-month period described in section 334(b)(2)(B) for
the acquisition by purchase of the stock of the foreign
corporation, began after December 31, 1979, and before November
26, 1980,
then such foreign corporation may make an election to be treated,
for the period following June 18, 1980, as a domestic corporation
pursuant to section 897(i)(1). Notwithstanding an election under
the preceding sentence, any selling shareholder of such corporation
shall be considered to have sold the stock of a foreign
corporation."
1988 - Subsec. (l). Pub. L. 100-647 struck out subsec. (l) which
provided special rule for certain United States shareholders of
liquidating foreign corporations.
1986 - Subsec. (a)(2). Pub. L. 99-514, Sec. 701(e)(4)(G),
substituted "21-percent" for "20-percent" in heading and amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "In the case of any nonresident alien individual, the
amount determined under section 55(a)(1) for the taxable year shall
not be less than 20 percent of the lesser of -
"(i) the individual's alternative minimum taxable income (as
defined in section 55(b)) for the taxable year, or
"(ii) the individual's net United States real property gain for
the taxable year."
Subsec. (d). Pub. L. 99-514, Sec. 631(e)(12), in heading, struck
out ", etc.," after "distributions", and in text, struck out
heading and designation for par. (1), redesignated subpar. (A) as
par. (1), redesignated subpar. (B) as par. (2) and substituted
"paragraph (1)" for "subparagraph (A)" in introductory provisions,
redesignated cl. (i) and its subcls. (I) and (II) as subpar. (A)
and cls. (i) and (ii), respectively, redesignated cl. (ii) as
subpar. (B), and struck out former par. (2) which provided that
section 337 not apply to any sale or exchange of a United States
real property interest by a foreign corporation.
Subsec. (i)(1), (4). Pub. L. 99-514, Sec. 1810(f)(1), inserted
reference to section 1445.
1982 - Subsec. (a)(2)(A). Pub. L. 97-248 substituted "section
55(a)(1) for the taxable year shall not be less than 20 percent of
the lesser of - " for "section 55(a)(1)(A) for the taxable year
shall not be less than 20 percent of whichever of the following is
the least:" in introductory provisions, in cl. (i) struck out "(1)"
after "section 55(b)" and inserted "or" at the end, in cl. (ii)
substituted a period for a comma and struck out "or" at the end,
and struck out former cl. (iii), which had provided for the amount
of $60,000 as a third alternative.
1981 - Subsec. (c)(1)(A)(i). Pub. L. 97-34, Sec. 831(a)(1),
defined "United States real property interest" to also mean an
interest in real property located in the Virgin Islands.
Subsec. (c)(4)(B). Pub. L. 97-34, Sec. 831(b), substituted
"Assets" for "Interests" in heading and in first sentence "Under
regulations prescribed by the Secretary, assets held by a
partnership, trust or estate shall be treated as held" for "United
States real property interests held by a partnership, trust, or
estate shall be treated as owned" before "proportionately by its
partners or beneficiaries", and inserted provisions respecting
treatment of an asset as used or held for use in a trade or
business by a partner or beneficiary when used or held by the
partnership, trust, or estate in a trade or business and
attributing chain treatment of such trade or business to
partnership, trust, or estate which are above the first such
entity.
Subsec. (d)(1)(B). Pub. L. 97-34, Sec. 831(c), substituted
"Exceptions" for "Exception where there is a carryover basis" in
heading, inserted introductory text "Gain shall not be recognized
under subparagraph (A)", inserted cls. (i)(I) and (ii), and
substituted cl. (i)(II) the basis of the distributed property in
the hands of the distributee is no greater than the adjusted basis
of such property before the distribution, increased by the amount
of gain (if any) recognized by the distributing corporation" for
subpar. (B) provision "Subparagraph (A) shall not apply if the
basis of the distributed property in the hands of the distributee
is the same as the adjusted basis of such property before the
distribution increased by the amount of any gain recognized by the
distributing corporation."
Subsec. (i). Pub. L. 97-34, Sec. 831(d), in par. (1)(A)
substituted "holds a United States real property interest" for "has
a permanent establishment in the United States", in par. (1)(B)
substituted "treaty obligation of the United States the foreign
corporation is entitled to nondiscriminatory treatment with respect
to that interest" for "treaty, such permanent establishment may not
be treated less favorably than domestic corporations carrying on
the same activities", in par. (3) inserted subpar. (A), designated
existing provisions as subpar. (B), in subpar. (B) substituted
"such other conditions as the Secretary may prescribe by
regulations with respect to the corporation or its shareholders"
for "such conditions as may be prescribed by the Secretary", and
prescribed percentage interest required for making the requisite
election and application of constructive ownership rules in
determining existence of the required percentage of a class of
interest.
Subsecs. (j) to (l). Pub. L. 97-34, Sec. 831(f), (g), added
subsecs. (j) to (l).
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see section 13203(d) of Pub. L. 103-66, set
out as a note under section 55 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(e)(12) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 701(e)(4)(G) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
Amendment by section 1810(f)(1) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 201(e)(1) of Pub. L. 97-248, set
out as a note under section 5 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 831(i) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section and sections 862 and
6039C of this title and provisions set out as a note below] shall
apply to dispositions after June 18, 1980, in taxable years ending
after such date."
EFFECTIVE DATE
Section 1125(a), (b) of subtitle C (Secs. 1121-1125) of title XI
of Pub. L. 96-499 provided that:
"(a) In general. - Except as provided in subsection (b), the
amendments made by this subtitle [enacting this section and
provisions set out as notes under this section, and amending
sections 861, 871, 882 of this title] shall apply to dispositions
after June 18, 1980.
"(b) Reporting. - The amendments made by section 1123 [enacting
section 6039C of this title and amending section 6652 of this
title] shall apply to 1980 and subsequent calendar years. In
applying such amendments to 1980, such calendar year shall be
treated as beginning on June 19, 1980, and ending on December 31,
1980."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(4)(G) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
SPECIAL RULE FOR APPLYING SECTION 897
Section 1228 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(m), Nov. 10, 1988, 102 Stat. 3513, provided
that:
"(a) In General. - For purposes of section 897 of the Internal
Revenue Code of 1986, gain shall not be recognized on the transfer,
sale, exchange, or other disposition, of shares of stock of a
United States real property holding company, if -
"(1) such United States real property holding company is a
Delaware corporation incorporated on January 17, 1984,
"(2) the transfer, sale, exchange, or other disposition is to
any member of a qualified ownership group,
"(3) the recipient of the share of stock elects, for purposes
of such section 897, a carryover basis in the transferred shares,
"(4) the transfer, sale, exchange, or other disposition is part
of a single integrated plan, whereby the stock of the corporation
described in paragraph (1) becomes owned directly by the 2
corporations specifically referred to in subsection (b) or by
such 2 corporations and by 1 or both of their jointly owned
direct subsidiaries,
"(5) within 20 days after each transfer, sale, exchange, or
other disposition, the person making such transfer, sale,
exchange, or other disposition notifies the Internal Revenue
Service of the transaction, the date of the transaction, the
basis of the stock involved, the holding period for such stock,
and such other information as the Internal Revenue Service may
require, and
"(6) the integrated plan is completed before the date 4 years
after the date of the enactment of the Technical and
Miscellaneous Revenue Act of 1988 [Nov. 10, 1988].
In the case of any underpayment attributable to a failure to meet
any requirement of this subsection, the period during which such
underpayment may be assessed shall in no event expire before the
date 5 years after the date of the enactment of the Technical and
Miscellaneous Revenue Act of 1988.
"(b) Member of a Qualified Ownership Group. - For purposes of
this section, the term 'member of a qualified ownership group'
means a corporation incorporated on June 16, 1890, under the laws
of the Netherlands or a corporation incorporated on October 18,
1897, under the laws of the United Kingdom or any corporation owned
directly or indirectly by either or both such corporations.
"(c) [Repealed. Pub. L. 100-647, title I, Sec. 1012(m)(2), Nov.
10, 1988, 102 Stat. 3513.]
"(d) Effective Date. - The provisions of this section shall take
effect on the date of the enactment of this section [Oct. 22,
1986]."
GAIN FROM DISPOSITION OF INVESTMENT IN UNITED STATES REAL PROPERTY
BY NONRESIDENT ALIEN INDIVIDUALS AND FOREIGN CORPORATIONS
Section 1125(c) of Pub. L. 96-499, as amended by Pub. L. 97-34,
title VIII, Sec. 831(h), Aug. 13, 1981, 95 Stat. 355; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraph (2), after
December 31, 1984, nothing in section 894(a) or 7852(d) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] or in any
other provision of law shall be treated as requiring, by reason of
any treaty obligation of the United States, an exemption from (or
reduction of) any tax imposed by section 871 or 882 of such Code on
a gain described in section 897 of such Code.
"(2) Special rule for treaties renegotiated before 1985. - If -
"(A) any treaty (hereinafter in this paragraph referred to as
the 'old treaty') is renegotiated to resolve conflicts between
such treaty and the provisions of section 897 of the Internal
Revenue Code of 1986, and
"(B) the new treaty is signed on or after January 1, 1981, and
before January 1, 1985,
then paragraph (1) shall be applied with respect to obligations
under the old treaty by substituting for 'December 31, 1984' the
date (not later than 2 years after the new treaty was signed)
specified in the new treaty (or accompanying exchange of notes)."
ADJUSTMENT IN BASIS FOR CERTAIN TRANSACTIONS BETWEEN RELATED
PERSONS
Section 1125(d) of Pub. L. 96-499, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - In the case of any disposition after December
31, 1979, of a United States real property interest (as defined in
section 897(c) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]) to a related person (within the meaning of section
453(f)(1) of such Code), the basis of the interest in the hands of
the person acquiring it shall be reduced by the amount of any
nontaxed gain.
"(2) Nontaxed gain. - For purposes of paragraph (1), the term
'nontaxed gain' means any gain which is not subject to tax under
section 871(b)(1) or 882(a)(1) of such Code -
"(A) because the disposition occurred before June 19, 1980, or
"(B) because of any treaty obligation of the United States."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 861, 862, 871, 882, 884,
1445, 6039C of this title.
-End-
-CITE-
26 USC Sec. 898 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Subpart D - Miscellaneous Provisions
-HEAD-
Sec. 898. Taxable year of certain foreign corporations
-STATUTE-
(a) General rule
For purposes of this title, the taxable year of any specified
foreign corporation shall be the required year determined under
subsection (c).
(b) Specified foreign corporation
For purposes of this section -
(1) In general
The term "specified foreign corporation" means any foreign
corporation -
(A) which is -
(i) treated as a controlled foreign corporation for any
purpose under subpart F of part III of this subchapter, or
(ii) a foreign personal holding company (as defined in
section 552), and
(B) with respect to which the ownership requirements of
paragraph (2) are met.
(2) Ownership requirements
(A) In general
The ownership requirements of this paragraph are met with
respect to any foreign corporation if a United States
shareholder owns, on each testing day, more than 50 percent of
-
(i) the total voting power of all classes of stock of such
corporation entitled to vote, or
(ii) the total value of all classes of stock of such
corporation.
(B) Ownership
For purposes of subparagraph (A), the rules of subsections
(a) and (b) of section 958 and sections 551(f) and 554,
whichever are applicable, shall apply in determining ownership.
(3) United States shareholder
(A) In general
The term "United States shareholder" has the meaning given to
such term by section 951(b), except that, in the case of a
foreign corporation having related person insurance income (as
defined in section 953(c)(2)), the Secretary may treat any
person as a United States shareholder for purposes of this
section if such person is treated as a United States
shareholder under section 953(c)(1).
(B) Foreign personal holding companies
In the case of any foreign personal holding company (as
defined in section 552) which is not a specified foreign
corporation by reason of paragraph (1)(A)(i), the term "United
States shareholder" means any person who is treated as a United
States shareholder under section 551.
(c) Determination of required year
(1) Controlled foreign corporations
(A) In general
In the case of a specified foreign corporation described in
subsection (b)(1)(A)(i), the required year is -
(i) the majority U.S. shareholder year, or
(ii) if there is no majority U.S. shareholder year, the
taxable year prescribed under regulations.
(B) 1-month deferral allowed
A specified foreign corporation may elect, in lieu of the
taxable year under subparagraph (A)(i), a taxable year
beginning 1 month earlier than the majority U.S. shareholder
year.
(C) Majority U.S. shareholder year
(i) In general
For purposes of this subsection, the term "majority U.S.
shareholder year" means the taxable year (if any) which, on
each testing day, constituted the taxable year of -
(I) each United States shareholder described in
subsection (b)(2)(A), and
(II) each United States shareholder not described in
subclause (I) whose stock was treated as owned under
subsection (b)(2)(B) by any shareholder described in such
subclause.
(ii) Testing day
The testing days shall be -
(I) the first day of the corporation's taxable year
(determined without regard to this section), or
(II) the days during such representative period as the
Secretary may prescribe.
(2) Foreign personal holding companies
In the case of a foreign personal holding company described in
subsection (b)(3)(B), the required year shall be determined under
paragraph (1), except that subparagraph (B) of paragraph (1)
shall not apply.
-SOURCE-
(Added Pub. L. 101-239, title VII, Sec. 7401(a), Dec. 19, 1989, 103
Stat. 2355.)
-MISC1-
EFFECTIVE DATE
Section 7401(d) of Pub. L. 101-239 provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending section 563 of this title] shall apply to
taxable years of foreign corporations beginning after July 10,
1989.
"(2) Special rules. - If any foreign corporation is required by
the amendments made by this section to change its taxable year for
its first taxable year beginning after July 10, 1989 -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the
consent of the Secretary of the Treasury or his delegate, and
"(C) if, by reason of such change, any United States person is
required to include in gross income for 1 taxable year amounts
attributable to 2 taxable years of such foreign corporation, the
amount which would otherwise be required to be included in gross
income for such 1 taxable year by reason of the short taxable
year of the foreign corporation resulting from such change shall
be included in gross income ratably over the 4-taxable-year
period beginning with such 1 taxable year."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 6038 of this title.
-End-
-CITE-
26 USC PART III - INCOME FROM SOURCES WITHOUT THE UNITED
STATES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
-HEAD-
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
-MISC1-
Subpart
A. Foreign tax credit.
B. Earned income of citizens or residents of United
States.
[C. Repealed.]
D. Possessions of the United States.
E. Qualifying foreign trade income.
F. Controlled foreign corporations.
[G. Repealed.] (!1)
H. Income of certain nonresident United States citizens
subject to foreign community property laws.(!1)
I. Admissibility of documentation maintained in foreign
countries.
J. Foreign currency transactions.
AMENDMENTS
2000 - Pub. L. 106-519, Sec. 4(8), Nov. 15, 2000, 114 Stat. 2433,
struck out item for subpart C "Taxation of foreign sales
corporations".
Pub. L. 106-519, Sec. 4(7), Nov. 15, 2000, 114 Stat. 2433, added
item for subpart E and directed that former item for subpart E be
struck out, which could not be executed because the item for
subpart E had previously been struck out by Pub. L. 94-455, Sec.
1053(d)(5). See 1976 Amendment note below.
1986 - Pub. L. 99-514, title XII, Sec. 1261(d), Oct. 22, 1986,
100 Stat. 2591, added item for subpart J.
1984 - Pub. L. 98-369, div. A, title VIII, Sec. 802(c)(4), July
18, 1984, 98 Stat. 999, added item for subpart C.
1982 - Pub. L. 97-248, title III, Sec. 337(b), Sept. 3, 1982, 96
Stat. 630, added item for subpart I.
1978 - Pub. L. 95-615, Sec. 202(g)(4), formerly Sec. 202(f)(4),
Nov. 8, 1978, 92 Stat. 3100, renumbered Pub. L. 96-222, title I,
Sec. 108(a)(1)(A), Apr. 1, 1980, 94 Stat. 223, inserted in item for
subpart B "or residents" after "citizens."
1976 - Pub. L. 94-455, title X, Sec. 1012(b)(3)(B), Oct. 4, 1976,
90 Stat. 1614, struck out item for subpart G "Export Trade
Corporation" from analysis without a corresponding repeal of text
in such subpart. The amendment probably should have struck out item
for subpart H.
Pub. L. 94-455, title X, Secs. 1052(c)(7), 1053(d)(5), Oct. 4,
1976, 90 Stat. 1648, 1649, struck out item for subpart C, relating
to Western Hemisphere trade corporations, effective for taxable
years beginning after Dec. 31, 1979, and item for subpart E,
relating to China Trade Act corporations, effective for taxable
years beginning after Dec. 31, 1977.
1966 - Pub. L. 89-809, title I, Sec. 105(e)(2), Nov. 13, 1966, 80
Stat. 1567, added item for subpart H.
1962 - Pub. L. 87-834, Sec. 12(b)(3), Oct. 16, 1962, 76 Stat.
1031, added items for subparts F and G.
-FOOTNOTE-
(!1) See 1976 Amendment note below.
-End-
-CITE-
26 USC Subpart A - Foreign Tax Credit 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
SUBPART A - FOREIGN TAX CREDIT
-MISC1-
Sec.
901. Taxes of foreign countries and of possessions of
United States.
902. Deemed paid credit where domestic corporation owns 10
percent or more of voting stock of foreign
corporation.
903. Credit for taxes in lieu of income, etc., taxes.
904. Limitation on credit.
905. Applicable rules.
906. Nonresident alien individuals and foreign
corporations.
907. Special rules in case of foreign oil and gas income.
908. Reduction of credit for participation in or
cooperation with an international boycott.
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Sec. 1202(d), Oct. 22, 1986,
100 Stat. 2531, substituted "Deemed paid credit where domestic
corporation owns 10 percent or more of voting stock of foreign
corporation" for "Credit for corporate stockholder in foreign
corporation" in item 902.
1976 - Pub. L. 94-455, title X, Sec. 1061(b), Oct. 4, 1976, 90
Stat. 1650, added item 908.
1975 - Pub. L. 94-12, title VI, Sec. 601(c), Mar. 29, 1975, 89
Stat. 57, added item 907.
1966 - Pub. L. 89-809, title I, Sec. 106(a)(2), Nov. 13, 1966, 80
Stat. 1569, added item 906.
-SECREF-
SUBPART REFERRED TO IN OTHER SECTIONS
This subpart is referred to in sections 78, 338, 667, 814, 861,
960, 1351, 1373 of this title.
-End-
-CITE-
26 USC Sec. 901 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
Sec. 901. Taxes of foreign countries and of possessions of United
States
-STATUTE-
(a) Allowance of credit
If the taxpayer chooses to have the benefits of this subpart, the
tax imposed by this chapter shall, subject to the limitation of
section 904, be credited with the amounts provided in the
applicable paragraph of subsection (b) plus, in the case of a
corporation, the taxes deemed to have been paid under sections 902
and 960. Such choice for any taxable year may be made or changed at
any time before the expiration of the period prescribed for making
a claim for credit or refund of the tax imposed by this chapter for
such taxable year. The credit shall not be allowed against any tax
treated as a tax not imposed by this chapter under section 26(b).
(b) Amount allowed
Subject to the limitation of section 904, the following amounts
shall be allowed as the credit under subsection (a):
(1) Citizens and domestic corporations
In the case of a citizen of the United States and of a domestic
corporation, the amount of any income, war profits, and excess
profits taxes paid or accrued during the taxable year to any
foreign country or to any possession of the United States; and
(2) Resident of the United States or Puerto Rico
In the case of a resident of the United States and in the case
of an individual who is a bona fide resident of Puerto Rico
during the entire taxable year, the amount of any such taxes paid
or accrued during the taxable year to any possession of the
United States; and
(3) Alien resident of the United States or Puerto Rico
In the case of an alien resident of the United States and in
the case of an alien individual who is a bona fide resident of
Puerto Rico during the entire taxable year, the amount of any
such taxes paid or accrued during the taxable year to any foreign
country; and
(4) Nonresident alien individuals and foreign corporations
In the case of any nonresident alien individual not described
in section 876 and in the case of any foreign corporation, the
amount determined pursuant to section 906; and
(5) Partnerships and estates
In the case of any individual described in paragraph (1), (2),
(3), or (4), who is a member of a partnership or a beneficiary of
an estate or trust, the amount of his proportionate share of the
taxes (described in such paragraph) of the partnership or the
estate or trust paid or accrued during the taxable year to a
foreign country or to any possession of the United States, as the
case may be. Under rules or regulations prescribed by the
Secretary, in the case of any foreign trust of which the settlor
or another person would be treated as owner of any portion of the
trust under subpart E but for section 672(f), the allocable
amount of any income, war profits, and excess profits taxes
imposed by any foreign country or possession of the United States
on the settlor or such other person in respect of trust income.
(c) Similar credit required for certain alien residents
Whenever the President finds that -
(1) a foreign country, in imposing income, war profits, and
excess profits taxes, does not allow to citizens of the United
States residing in such foreign country a credit for any such
taxes paid or accrued to the United States or any foreign
country, as the case may be, similar to the credit allowed under
subsection (b)(3),
(2) such foreign country, when requested by the United States
to do so, has not acted to provide such a similar credit to
citizens of the United States residing in such foreign country,
and
(3) it is in the public interest to allow the credit under
subsection (b)(3) to citizens or subjects of such foreign country
only if it allows such a similar credit to citizens of the United
States residing in such foreign country,
the President shall proclaim that, for taxable years beginning
while the proclamation remains in effect, the credit under
subsection (b)(3) shall be allowed to citizens or subjects of such
foreign country only if such foreign country, in imposing income,
war profits, and excess profits taxes, allows to citizens of the
United States residing in such foreign country such a similar
credit.
(d) Treatment of dividends from a DISC or former DISC
For purposes of this subpart, dividends from a DISC or former
DISC (as defined in section 992(a)) shall be treated as dividends
from a foreign corporation to the extent such dividends are treated
under part I as income from sources without the United States.
(e) Foreign taxes on mineral income
(1) Reduction in amount allowed
Notwithstanding subsection (b), the amount of any income, war
profits, and excess profits taxes paid or accrued during the
taxable year to any foreign country or possession of the United
States with respect to foreign mineral income from sources within
such country or possession which would (but for this paragraph)
be allowed under such subsection shall be reduced by the amount
(if any) by which -
(A) the amount of such taxes (or, if smaller, the amount of
the tax which would be computed under this chapter with respect
to such income determined without the deduction allowed under
section 613), exceeds
(B) the amount of the tax computed under this chapter with
respect to such income.
(2) Foreign mineral income defined
For purposes of paragraph (1), the term "foreign mineral
income" means income derived from the extraction of minerals from
mines, wells, or other natural deposits, the processing of such
minerals into their primary products, and the transportation,
distribution, or sale of such minerals or primary products. Such
term includes, but is not limited to -
(A) dividends received from a foreign corporation in respect
of which taxes are deemed paid by the taxpayer under section
902, to the extent such dividends are attributable to foreign
mineral income, and
(B) that portion of the taxpayer's distributive share of the
income of partnerships attributable to foreign mineral income.
(f) Certain payments for oil or gas not considered as taxes
Notwithstanding subsection (b) and sections 902 and 960, the
amount of any income, or profits, and excess profits taxes paid or
accrued during the taxable year to any foreign country in
connection with the purchase and sale of oil or gas extracted in
such country is not to be considered as tax for purposes of section
275(a) and this section if -
(1) the taxpayer has no economic interest in the oil or gas to
which section 611(a) applies, and
(2) either such purchase or sale is at a price which differs
from the fair market value for such oil or gas at the time of
such purchase or sale.
(g) Certain taxes paid with respect to distributions from
possessions corporations
(1) In general
For purposes of this chapter, any tax of a foreign country or
possession of the United States which is paid or accrued with
respect to any distribution from a corporation -
(A) to the extent that such distribution is attributable to
periods during which such corporation is a possessions
corporation, and
(B)(i) if a dividends received deduction is allowable with
respect to such distribution under part VIII of subchapter B,
or
(ii) to the extent that such distribution is received in
connection with a liquidation or other transaction with respect
to which gain or loss is not recognized,
shall not be treated as income, war profits, or excess profits
taxes paid or accrued to a foreign country or possession of the
United States, and no deduction shall be allowed under this title
with respect to any amount so paid or accrued.
(2) Possessions corporation
For purposes of paragraph (1), a corporation shall be treated
as a possessions corporation for any period during which an
election under section 936 applied to such corporation, during
which section 931 (as in effect on the day before the date of the
enactment of the Tax Reform Act of 1976) applied to such
corporation, or during which section 957(c) (as in effect on the
day before the date of the enactment of the Tax Reform Act of
1986) applied to such corporation.
(h) Taxes paid with respect to foreign trade income
No credit shall be allowed under this section for any income, war
profits, and excess profits taxes paid or accrued with respect to
the foreign trade income (within the meaning of section 923(b))
(!1) of a FSC, other than section 923(a)(2) (!1) non-exempt income
(within the meaning of section 927(d)(6)).(!1)
(i) Taxes used to provide subsidies
Any income, war profits, or excess profits tax shall not be
treated as a tax for purposes of this title to the extent -
(1) the amount of such tax is used (directly or indirectly) by
the country imposing such tax to provide a subsidy by any means
to the taxpayer, a related person (within the meaning of section
482), or any party to the transaction or to a related
transaction, and
(2) such subsidy is determined (directly or indirectly) by
reference to the amount of such tax, or the base used to compute
the amount of such tax.
(j) Denial of foreign tax credit, etc., with respect to certain
foreign countries
(1) In general
Notwithstanding any other provision of this part -
(A) no credit shall be allowed under subsection (a) for any
income, war profits, or excess profits taxes paid or accrued
(or deemed paid under section 902 or 960) to any country if
such taxes are with respect to income attributable to a period
during which this subsection applies to such country, and
(B) subsections (a), (b), and (c) of section 904 and sections
902 and 960 shall be applied separately with respect to income
attributable to such a period from sources within such country.
(2) Countries to which subsection applies
(A) In general
This subsection shall apply to any foreign country -
(i) the government of which the United States does not
recognize, unless such government is otherwise eligible to
purchase defense articles or services under the Arms Export
Control Act,
(ii) with respect to which the United States has severed
diplomatic relations,
(iii) with respect to which the United States has not
severed diplomatic relations but does not conduct such
relations, or
(iv) which the Secretary of State has, pursuant to section
6(j) of the Export Administration Act of 1979, as amended,
designated as a foreign country which repeatedly provides
support for acts of international terrorisms.
(B) Period for which subsection applies
This subsection shall apply to any foreign country described
in subparagraph (A) during the period -
(i) beginning on the later of -
(I) January 1, 1987, or
(II) 6 months after such country becomes a country
described in subparagraph (A), and
(ii) ending on the date the Secretary of State certifies to
the Secretary of the Treasury that such country is no longer
described in subparagraph (A).
(3) Taxes allowed as a deduction, etc.
Sections 275 and 78 shall not apply to any tax which is not
allowable as a credit under subsection (a) by reason of this
subsection.
(4) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection, including regulations which treat income paid through
1 or more entities as derived from a foreign country to which
this subsection applies if such income was, without regard to
such entities, derived from such country.
(5) Waiver of denial
(A) In general
Paragraph (1) shall not apply with respect to taxes paid or
accrued to a country if the President -
(i) determines that a waiver of the application of such
paragraph is in the national interest of the United States
and will expand trade and investment opportunities for United
States companies in such country; and
(ii) reports such waiver under subparagraph (B).
(B) Report
Not less than 30 days before the date on which a waiver is
granted under this paragraph, the President shall report to
Congress -
(i) the intention to grant such waiver; and
(ii) the reason for the determination under subparagraph
(A)(i).
(k) Minimum holding period for certain taxes
(1) Withholding taxes
(A) In general
In no event shall a credit be allowed under subsection (a)
for any withholding tax on a dividend with respect to stock in
a corporation if -
(i) such stock is held by the recipient of the dividend for
15 days or less during the 30-day period beginning on the
date which is 15 days before the date on which such share
becomes ex-dividend with respect to such dividend, or
(ii) to the extent that the recipient of the dividend is
under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions
in substantially similar or related property.
(B) Withholding tax
For purposes of this paragraph, the term "withholding tax"
includes any tax determined on a gross basis; but does not
include any tax which is in the nature of a prepayment of a tax
imposed on a net basis.
(2) Deemed paid taxes
In the case of income, war profits, or excess profits taxes
deemed paid under section 853, 902, or 960 through a chain of
ownership of stock in 1 or more corporations, no credit shall be
allowed under subsection (a) for such taxes if -
(A) any stock of any corporation in such chain (the ownership
of which is required to obtain credit under subsection (a) for
such taxes) is held for less than the period described in
paragraph (1)(A)(i), or
(B) the corporation holding the stock is under an obligation
referred to in paragraph (1)(A)(ii).
(3) 45-day rule in the case of certain preference dividends
In the case of stock having preference in dividends and
dividends with respect to such stock which are attributable to a
period or periods aggregating in excess of 366 days, paragraph
(1)(A)(i) shall be applied -
(A) by substituting "45 days" for "15 days" each place it
appears, and
(B) by substituting "90-day period" for "30-day period".
(4) Exception for certain taxes paid by securities dealers
(A) In general
Paragraphs (1) and (2) shall not apply to any qualified tax
with respect to any security held in the active conduct in a
foreign country of a business as a securities dealer of any
person -
(i) who is registered as a securities broker or dealer
under section 15(a) of the Securities Exchange Act of 1934,
(ii) who is registered as a Government securities broker or
dealer under section 15C(a) of such Act, or
(iii) who is licensed or authorized in such foreign country
to conduct securities activities in such country and is
subject to bona fide regulation by a securities regulating
authority of such country.
(B) Qualified tax
For purposes of subparagraph (A), the term "qualified tax"
means a tax paid to a foreign country (other than the foreign
country referred to in subparagraph (A)) if -
(i) the dividend to which such tax is attributable is
subject to taxation on a net basis by the country referred to
in subparagraph (A), and
(ii) such country allows a credit against its net basis tax
for the full amount of the tax paid to such other foreign
country.
(C) Regulations
The Secretary may prescribe such regulations as may be
appropriate to carry out this paragraph, including regulations
to prevent the abuse of the exception provided by this
paragraph and to treat other taxes as qualified taxes.
(5) Certain rules to apply
For purposes of this subsection, the rules of paragraphs (3)
and (4) of section 246(c) shall apply.
(6) Treatment of bona fide sales
If a person's holding period is reduced by reason of the
application of the rules of section 246(c)(4) to any contract for
the bona fide sale of stock, the determination of whether such
person's holding period meets the requirements of paragraph (2)
with respect to taxes deemed paid under section 902 or 960 shall
be made as of the date such contract is entered into.
(7) Taxes allowed as deduction, etc.
Sections 275 and 78 shall not apply to any tax which is not
allowable as a credit under subsection (a) by reason of this
subsection.
(l) Cross reference
(1) For deductions of income, war profits, and excess profits
taxes paid to a foreign country or a possession of the United
States, see sections 164 and 275.
(2) For right of each partner to make election under this
section, see section 703(b).
(3) For right of estate or trust to the credit for taxes
imposed by foreign countries and possessions of the United
States under this section, see section 642(a).
(4) For reduction of credit for failure of a United States
person to furnish certain information with respect to a foreign
corporation or partnership controlled by him, see section 6038.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 285; Pub. L. 86-780, Sec. 3(a),
(b), Sept. 14, 1960, 74 Stat. 1013; Pub. L. 87-834, Secs. 9(d)(3),
12(b)(1), Oct. 16, 1962, 76 Stat. 1001, 1031; Pub. L. 88-272, title
II, Sec. 207(b)(7), Feb. 26, 1964, 78 Stat. 42; Pub. L. 89-384,
Sec. 1(c)(2), Apr. 8, 1966, 80 Stat. 102; Pub. L. 89-809, title I,
Sec. 106(a)(4), (5), (b)(1), (2), Nov. 13, 1966, 80 Stat. 1569;
Pub. L. 91-172, title III, Sec. 301(b)(9), title V, Sec. 506(a),
Dec. 30, 1969, 83 Stat. 585, 634; Pub. L. 92-178, title V, Sec.
502(b)(1), Dec. 10, 1971, 85 Stat. 549; Pub. L. 93-406, title II,
Secs. 2001(g)(2)(C), 2002(g)(3), 2005(c)(5), Sept. 2, 1974, 88
Stat. 957, 968, 991; Pub. L. 94-12, title VI, Sec. 601(b), Mar. 29,
1975, 89 Stat. 57; Pub. L. 94-455, title X, Secs. 1031(b)(1),
1051(d), title XIX, Sec. 1901(b)(1)(H)(iii), (37)(A), Oct. 4, 1976,
90 Stat. 1622, 1645, 1791, 1803; Pub. L. 95-600, title VII, Sec.
701(u)(1)(A), (B), Nov. 6, 1978, 92 Stat. 2912; Pub. L. 97-248,
title II, Sec. 201(d)(8)(A), formerly Sec. 201(c)(8)(A), Sec.
265(b)(2)(A)(iv), Sept. 3, 1982, 96 Stat. 420, 547, renumbered Sec.
201(d)(8)(A), Pub. L. 97-448, title III, Sec. 306(a)(1)(A)(i), Jan.
12, 1983, 96 Stat. 2400; Pub. L. 98-369, div. A, title IV, Sec.
474(r)(20), title VI, Sec. 612(e)(1), title VII, Sec. 713(c)(1)(C),
title VIII, Sec. 801(d)(1), July 18, 1984, 98 Stat. 843, 912, 957,
995; Pub. L. 99-509, title VIII, Sec. 8041(a), Oct. 21, 1986, 100
Stat. 1962; Pub. L. 99-514, title I, Sec. 112(b)(3), title XII,
Sec. 1204(a), title XVIII, Sec. 1876(p)(2), Oct. 22, 1986, 100
Stat. 2109, 2532, 2902; Pub. L. 100-203, title X, Sec. 10231(a),
(b), Dec. 22, 1987, 101 Stat. 1330-418, 1330-419; Pub. L. 100-647,
title I, Sec. 1012(j), title II, Sec. 2003(c)(1), Nov. 10, 1988,
102 Stat. 3512, 3598; Pub. L. 103-149, Sec. 4(b)(8)(A), Nov. 23,
1993, 107 Stat. 1505; Pub. L. 104-188, title I, Sec. 1904(b)(2),
Aug. 20, 1996, 110 Stat. 1912; Pub. L. 105-34, title X, Sec.
1053(a), title XI, Sec. 1142(e)(4), Aug. 5, 1997, 111 Stat. 941,
983; Pub. L. 105-206, title VI, Sec. 6010(k)(3), July 22, 1998, 112
Stat. 815; Pub. L. 106-200, title VI, Sec. 601(a), May 18, 2000,
114 Stat. 305.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1976, referred
to in subsec. (g)(2), is the date of enactment of Pub. L. 94-455,
which was approved Oct. 4, 1976.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (g)(2), is the date of enactment of Pub. L. 99-514,
which was approved Oct. 22, 1986.
Sections 923 and 927, referred to in subsec. (h), were repealed
by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
The Arms Export Control Act, referred to in subsec. (j)(2)(A)(i),
is Pub. L. 90-269, Oct. 22, 1968, 82 Stat. 1320, as amended, which
is classified principally to chapter 39 (Sec. 2751 et seq.) of
Title 22, Foreign Relations and Intercourse. For complete
classification of this Act to the Code, see Short Title note set
out under section 2751 of Title 22 and Tables.
Section 6(j) of the Export Administration Act of 1979, referred
to in subsec. (j)(2)(A)(iv), is classified to section 2405(j) of
Title 50, Appendix, War and National Defense.
Sections 15(a) and 15C(a) of the Securities Exchange Act of 1934,
referred to in subsec. (k)(4)(A)(i), (ii), are classified to
sections 78o(a) and 78o-5(a), respectively, of Title 15, Commerce
and Trade.
-MISC1-
AMENDMENTS
2000 - Subsec. (j)(5). Pub. L. 106-200 added par. (5).
1998 - Subsec. (k)(4)(A). Pub. L. 105-206 substituted "business
as a securities dealer" for "securities business" in introductory
provisions.
1997 - Subsec. (k). Pub. L. 105-34, Sec. 1053(a), added subsec.
(k). Former subsec. (k) redesignated (l).
Subsec. (l). Pub. L. 105-34, Sec. 1053(a), redesignated subsec.
(k) as (l).
Subsec. (l)(4). Pub. L. 105-34, Sec. 1142(e)(4), which directed
amendment of subsec. (k)(4) by substituting "foreign corporation or
partnership" for "foreign corporation", was executed to subsec.
(l)(4) to reflect the probable intent of Congress and the
redesignation of subsec. (k) as (l) by Pub. L. 105-34, Sec.
1053(a). See above.
1996 - Subsec. (b)(5). Pub. L. 104-188 inserted at end "Under
rules or regulations prescribed by the Secretary, in the case of
any foreign trust of which the settlor or another person would be
treated as owner of any portion of the trust under subpart E but
for section 672(f), the allocable amount of any income, war
profits, and excess profits taxes imposed by any foreign country or
possession of the United States on the settlor or such other person
in respect of trust income."
1993 - Subsec. (j)(2)(C). Pub. L. 103-149 struck out heading and
text of subpar. (C). Text read as follows:
"(i) In general. - In addition to any period during which this
subsection would otherwise apply to South Africa, this subsection
shall apply to South Africa during the period -
"(I) beginning on January 1, 1988, and
"(II) ending on the date the Secretary of State certifies to
the Secretary of the Treasury that South Africa meets the
requirements of section 311(a) of the Comprehensive
Anti-Apartheid Act of 1986 (as in effect on the date of the
enactment of this subparagraph).
"(ii) South africa defined. - For purposes of clause (i), the
term 'South Africa' has the meaning given to such term by paragraph
(6) of section 3 of the Comprehensive Anti-Apartheid Act of 1986
(as so in effect)."
1988 - Subsec. (g)(2). Pub. L. 100-647, Sec. 1012(j), inserted
"(as in effect on the day before the date of the enactment of the
Tax Reform Act of 1986)" after "section 957(c)".
Subsec. (j)(3). Pub. L. 100-647, Sec. 2003(c)(1), inserted ",
etc." at end of heading and substituted "Sections 275 and 78" for
"Section 275" in text.
1987 - Subsec. (j)(1). Pub. L. 100-203, Sec. 10231(b),
substituted "during which" for "to which" in subpar. (A) and "such
country" for "any country so identified" in subpar. (B).
Subsec. (j)(2)(C). Pub. L. 100-203, Sec. 10231(a), added subpar.
(C).
1986 - Subsec. (h). Pub. L. 99-514, Sec. 1876(p)(2), inserted
closing parenthesis after "section 927(d)(6)".
Subsec. (i). Pub. L. 99-514, Sec. 1204(a), added subsec. (i).
Former subsec. (i) redesignated (j).
Subsec. (i)(3). Pub. L. 99-514, Sec. 112(b)(3), substituted
"section 642(a)" for "section 642(a)(1)".
Subsec. (j). Pub. L. 99-509 added subsec. (j). Former subsec. (j)
redesignated (k).
Pub. L. 99-514, Sec. 1204(a), redesignated former subsec. (i) as
(j).
Subsec. (k). Pub. L. 99-509 redesignated former subsec. (j) as
(k).
1984 - Subsec. (a). Pub. L. 98-369, Sec. 612(e)(1), substituted
"section 26(b)" for "section 25(b)".
Pub. L. 98-369, Sec. 474(r)(20), substituted "The credit shall
not be allowed against any tax treated as a tax not imposed by this
chapter under section 25(b)" for "The credit shall not be allowed
against the tax imposed by section 56 (relating to corporate
minimum tax), against the tax imposed for the taxable year under
section 72(m)(5)(B) (relating to 10 percent tax on premature
distributions to owner-employees) section 72(q)(1) (relating to
5-percent tax on premature distributions under annuity contracts),,
against the tax imposed by section 402(e) (relating to tax on lump
sum distributions), against the tax imposed for the taxable year by
section 408(f) (relating to additional tax on income from certain
retirement accounts), against the tax imposed by section 531
(relating to the tax on accumulated earnings), against the
additional tax imposed for the taxable year under section 1351
(relating to recoveries of foreign expropriation losses), or
against the personal holding company tax imposed by section 541".
Pub. L. 98-369, Sec. 713(c)(1)(C), substituted "premature
distributions to key employees" for "premature distributions to
owner-employees".
Subsecs. (h), (i). Pub. L. 98-369, Sec. 801(d)(1), added subsec.
(h) and redesignated former subsec. (h) as (i).
1982 - Subsec. (a). Pub. L. 97-248 substituted "(relating to
corporate minimum tax)" for "(relating to minimum tax for tax
preferences)" after "section 56", and inserted "section 72(q)(1)
(relating to 5-percent tax on premature distributions under annuity
contracts)," after "owner employees)".
1978 - Subsec. (g)(1). Pub. L. 95-600, Sec. 701(u)(1)(A),
inserted provisions prohibiting a deduction for any tax of a
foreign country or possession of the United States which is paid or
accrued with respect to any distribution from a corporation if a
dividends received deduction is allowable with respect to that
distribution from a corporation under part VIII of subchapter B.
Subsec. (g)(2). Pub. L. 95-600, Sec. 701(u)(1)(B), inserted
provision relating to application of section 957(c) of this title.
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1031(b)(1),
1901(b)(37)(A), struck out "under section 1333 (relating to war
loss recoveries) or" after "imposed for the taxable year" and
"applicable" after "subject to the".
Subsec. (b). Pub. L. 94-455, Sec. 1031(b)(1), struck out
"applicable" after "Subject to the".
Subsec. (d). Pub. L. 94-455, Sec. 1051(d)(1), struck out
provisions relating to corporations receiving a large percentage of
their gross receipts from sources within a possession of the United
States and a corporation organized under the China Trade Act, 1922
(15 U.S.C. chapter 4).
Subsecs. (g), (h). Pub. L. 94-455, Secs. 1051(d)(2),
1901(b)(1)(H)(iii), added subsec. (g), redesignated former subsec.
(g) as (h), and, as redesignated, substituted "section 642(a)(1)"
for "section 642(a)(2)" in par. (3).
1975 - Subsecs. (f), (g). Pub. L. 94-12 added subsec. (f) and
redesignated former subsec. (f) as (g).
1974 - Subsec. (a). Pub. L. 93-460 inserted references to the tax
imposed for the taxable year under section 72(m)(5)(B) (relating to
10 percent tax on premature distributions to owner-employees), the
tax imposed for the taxable year by section 408(f) (relating to
additional tax on income from certain retirement accounts), and the
tax imposed by section 402(e) (relating to tax on lump sum
distributions).
1971 - Subsec. (d). Pub. L. 92-178 inserted provision for
treatment of dividends from a DISC or former DISC as dividends from
a foreign corporation to the extent such dividends are treated
under part I as income from sources without the United States.
1969 - Subsec. (a). Pub. L. 91-172, Sec. 301(b)(9), inserted
"against the tax imposed by section 56 (relating to minimum tax for
tax preferences)," after "not be allowed" in last sentence.
Subsecs. (e), (f). Pub. L. 91-172, Sec. 506(a), added subsec. (e)
and redesignated former subsec. (e) as (f).
1966 - Subsec. (a). Pub. L. 89-384 added the additional tax
imposed under section 1351 (relating to recoveries of foreign
expropriation losses) to the list of taxes against which the
foreign tax credit may not be allowed.
Subsec. (b)(3). Pub. L. 89-809, Sec. 106(b)(1), struck out
provisions which made the allowance of the credit dependent upon
whether the foreign country of which the alien resident was a
citizen or subject, in imposing such taxes, allowed a similar
credit to citizens of the United States residing in such country.
Subsec. (b)(4), (5). Pub. L. 89-809, Sec. 106(a)(4), (5), added
par. (4), redesignated former par. (4) as (5) and inserted
reference to par. (4).
Subsecs. (c) to (e). Pub. L. 89-809, Sec. 106(b)(2), added
subsec. (c) and redesignated former subsecs. (c) and (d) as (d) and
(e), respectively.
1964 - Subsec. (d)(1). Pub. L. 88-272 inserted reference to
section 275.
1962 - Subsec. (a). Pub. L. 87-834, Sec. 12(b)(1), substituted
"sections 902 and 960" for "section 902".
Subsec. (d)(4). Pub. L. 87-834, Sec. 9(d)(3), added par. (4).
1960 - Subsec. (a). Pub. L. 86-780, Sec. 3(a), (b), inserted
"applicable" before "limitation" and substituted "Such choice for
any taxable year may be made or changed at any time before the
expiration of the period prescribed for making a claim for credit
or refund of the tax imposed by this chapter for such taxable year"
for "Such choice may be made or changed at any time prior to the
expiration of the period prescribed for making a claim for credit
or refund of the tax against which the credit is allowable."
Subsec. (b). Pub. L. 86-780, Sec. 3(b), inserted "applicable"
before "limitation".
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-200, title VI, Sec. 601(b), May 18, 2000, 114 Stat.
305, provided that: "The amendment made by this section [amending
this section] shall apply on or after February 1, 2001."
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 1053(a) of Pub. L. 105-34 applicable to
dividends paid or accrued more than 30 days after Aug. 5, 1997, see
section 1053(c) of Pub. L. 105-34, set out as a note under section
853 of this title.
Amendment by section 1142(e)(4) of Pub. L. 105-34 applicable to
annual accounting periods beginning after Aug. 5, 1997, see section
1142(f) of Pub. L. 105-34, set out as a note under section 318 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Aug. 20, 1996, with
exception for certain trusts, see section 1904(d) of Pub. L.
104-188, set out as a note under section 643 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1012(j) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 2003(c)(2) of Pub. L. 100-647 provided that: "The
amendments made by paragraph (1) [amending this section] shall take
effect on January 1, 1987."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10231(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 112(b)(3) 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.
Section 1204(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
foreign taxes paid or accrued in taxable years beginning after
December 31, 1986."
Amendment by section 1876(p)(2) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
Section 8041(c) of Pub. L. 99-509 provided that: "The amendments
made by this section [amending this section and section 952 of this
title] shall take effect on January 1, 1987."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(r)(20) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 612(e)(1) of Pub. L. 98-369 applicable to
interest paid or accrued after Dec. 31, 1984, on indebtedness
incurred after Dec. 31, 1984, see section 612(g) of Pub. L. 98-369,
set out as an Effective Date note under section 25 of this title.
Amendment by section 713(c)(1)(C) of Pub. L. 98-369 effective as
if included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
Amendment by section 801(d)(1) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by section 201(d)(8)(A) of Pub. L. 97-248 applicable to
taxable years beginning after Dec. 31, 1982, see section 201(e)(1)
of Pub. L. 97-248, set out as a note under section 5 of this title.
Amendment by section 265(b)(2)(A)(iv) of Pub. L. 97-248
applicable to distributions after Dec. 31, 1982, see section
265(c)(2) of Pub. L. 97-248, set out as a note under section 72 of
this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 701(u)(1)(C) of Pub. L. 95-600, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply as if included in section 901(g) of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954] as added by section 1051(d)(2) of
the Tax Reform Act of 1976 [section 1051(d)(2) of Pub. L. 94-455].
The amendments made by subparagraph (B) [amending this section]
shall apply to distributions made after the date of the enactment
of this Act [Nov. 6, 1978] in taxable years ending after such
date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1031(b)(1) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, with certain
exceptions, see section 1031(c) of Pub. L. 94-455, set out as a
note under section 904 of this title.
Amendment by section 1051(d)(1) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, with certain
exceptions, and the provisions of subsec. (g) not to apply to any
tax imposed by a possession of the United States with respect to
the complete liquidation occurring before Jan. 1, 1979, of a
corporation to the extent that such tax is attributable to earnings
and profits accumulated by such corporation during periods ending
before Jan. 1, 1976, see section 1051(i) of Pub. L. 94-455, set out
as a note under section 27 of this title.
Amendment by section 1901(b)(1)(H)(iii), (37)(A) of Pub. L.
94-455 applicable with respect to 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 1975 AMENDMENT
Amendment by Pub. L. 94-12 applicable to taxable years ending
after Dec. 31, 1974, see section 601(d) of Pub. L. 94-12, set out
as an Effective Date note under section 907 of this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Amendment by section 2001(g)(2)(C) of Pub. L. 93-406, which
inserted reference to the tax imposed for the taxable year under
section 72(m)(5)(B) (relating to 10 percent tax on premature
distributions to owner-employees), applicable to distributions made
in taxable years beginning after Dec. 31, 1975, see section
2001(i)(4) of Pub. L. 93-406, set out as a note under section 72 of
this title.
Amendment by section 2002(g)(3) of Pub. L. 93-406, which inserted
reference to the tax imposed for the taxable year by section 408(f)
(relating to additional tax on income from certain retirement
accounts), effective on Jan. 1, 1975, see section 2002(i)(2) of
Pub. L. 93-406, set out as an Effective Date note under section
4973 of this title.
Amendment by section 2005(c)(5) of Pub. L. 93-406, which inserted
reference to the tax imposed for the taxable year under section
402(e) (relating to tax on lump sum distributions), applicable only
with respect to distributions or payments made after Dec. 31, 1973,
in taxable years beginning after Dec. 31, 1973, see section 2005(d)
of Pub. L. 93-406, set out as a note under section 402 of this
title.
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by 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
Amendment by section 301(b)(9) of Pub. L. 91-172 applicable to
taxable years ending after Dec. 31, 1969, see section 301(c) of
Pub. L. 91-172, set out as a note under section 5 of this title.
Section 506(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and section 904 of this
title] shall apply with respect to taxable years beginning after
December 31, 1969."
EFFECTIVE DATE OF 1966 AMENDMENTS
Amendment by section 106(a)(4), (5) of Pub. L. 89-809 applicable
with respect to taxable years beginning after Dec. 31, 1966, see
section 106(a)(6) of Pub. L. 89-809, set out as a note under
section 874 of this title.
Section 106(b)(4) of Pub. L. 89-809 provided that: "The
amendments made by this subsection (other than paragraph (3))
[amending this section] shall apply with respect to taxable years
beginning after December 31, 1966. The amendment made by paragraph
(3) [amending section 2014 of this title] shall apply with respect
to estates of decedents dying after the date of enactment of this
Act [Nov. 13, 1966]."
Amendment by Pub. L. 89-384 applicable with respect to amounts
received after December 31, 1964, in respect of foreign
expropriation losses (as defined in section 1351(b) of this title)
sustained after December 31, 1958, see section 2 of Pub. L. 89-384,
set out as an Effective Date note under section 1351 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 207(c) of Pub. L. 88-272, set out
as a note under section 164 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by section 12(b)(1) of Pub. L. 87-834 applicable with
respect to taxable years of foreign corporations beginning after
Dec. 31, 1962, and to taxable years of United States shareholders
within which or with which such taxable years of such foreign
corporations end, see section 12(c) of Pub. L. 87-834, set out as
an Effective Date note under section 951 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by section 3(a) of Pub. L. 86-780 applicable to taxable
years beginning after Dec. 31, 1960, and amendment by section 3(b)
of Pub. L. 86-780 applicable to taxable years beginning after Dec.
31, 1953, and ending after Aug. 16, 1954, see section 4 of Pub. L.
86-780, set out as a note under section 904 of this title.
EFFECT OF AMENDMENT BY PUB. L. 103-149 ON REVENUE RULING 92-62
Amendment by section 4(b)(8)(A) of Pub. L. 103-149 not to be
construed as affecting any of the transitional rules contained in
Revenue Ruling 92-62 which apply by reason of the termination of
the period for which subsec. (j) of this section was applicable to
South Africa, see section 4(b)(8)(B) of Pub. L. 103-149 set out in
a Repeal of Chapter; South African Democratic Transition Support
note under section 5001 of Title 22, Foreign Relations and
Intercourse.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 27, 243, 245, 275, 515,
642, 702, 703, 772, 773, 841, 853, 861, 874, 882, 904, 905, 906,
907, 908, 943, 952, 960, 1247, 1291, 1363, 6038, 6511 of this
title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 902 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
Sec. 902. Deemed paid credit where domestic corporation owns 10
percent or more of voting stock of foreign corporation
-STATUTE-
(a) Taxes paid by foreign corporation treated as paid by domestic
corporation
For purposes of this subpart, a domestic corporation which owns
10 percent or more of the voting stock of a foreign corporation
from which it receives dividends in any taxable year shall be
deemed to have paid the same proportion of such foreign
corporation's post-1986 foreign income taxes as -
(1) the amount of such dividends (determined without regard to
section 78), bears to
(2) such foreign corporation's post-1986 undistributed
earnings.
(b) Deemed taxes increased in case of certain lower tier
corporations
(1) In general
If -
(A) any foreign corporation is a member of a qualified group,
and
(B) such foreign corporation owns 10 percent or more of the
voting stock of another member of such group from which it
receives dividends in any taxable year,
such foreign corporation shall be deemed to have paid the same
proportion of such other member's post-1986 foreign income taxes
as would be determined under subsection (a) if such foreign
corporation were a domestic corporation.
(2) Qualified group
For purposes of paragraph (1), the term "qualified group" means
-
(A) the foreign corporation described in subsection (a), and
(B) any other foreign corporation if -
(i) the domestic corporation owns at least 5 percent of the
voting stock of such other foreign corporation indirectly
through a chain of foreign corporations connected through
stock ownership of at least 10 percent of their voting stock,
(ii) the foreign corporation described in subsection (a) is
the first tier corporation in such chain, and
(iii) such other corporation is not below the sixth tier in
such chain.
The term "qualified group" shall not include any foreign
corporation below the third tier in the chain referred to in
clause (i) unless such foreign corporation is a controlled
foreign corporation (as defined in section 957) and the domestic
corporation is a United States shareholder (as defined in section
951(b)) in such foreign corporation. Paragraph (1) shall apply to
those taxes paid by a member of the qualified group below the
third tier only with respect to periods during which it was a
controlled foreign corporation.
(c) Definitions and special rules
For purposes of this section -
(1) Post-1986 undistributed earnings
The term "post-1986 undistributed earnings" means the amount of
the earnings and profits of the foreign corporation (computed in
accordance with sections 964(a) and 986) accumulated in taxable
years beginning after December 31, 1986 -
(A) as of the close of the taxable year of the foreign
corporation in which the dividend is distributed, and
(B) without diminution by reason of dividends distributed
during such taxable year.
(2) Post-1986 foreign income taxes
The term "post-1986 foreign income taxes" means the sum of -
(A) the foreign income taxes with respect to the taxable year
of the foreign corporation in which the dividend is
distributed, and
(B) the foreign income taxes with respect to prior taxable
years beginning after December 31, 1986, to the extent such
foreign taxes were not attributable to dividends distributed by
the foreign corporation in prior taxable years.
(3) Special rule where foreign corporation first qualifies after
December 31, 1986
(A) In general
If the 1st day on which the requirements of subparagraph (B)
are met with respect to any foreign corporation is in a taxable
year of such corporation beginning after December 31, 1986, the
post-1986 undistributed earnings and the post-1986 foreign
income taxes of such foreign corporation shall be determined by
taking into account only periods beginning on and after the 1st
day of the 1st taxable year in which such requirements are met.
(B) Ownership requirements
The requirements of this subparagraph are met with respect to
any foreign corporation if -
(i) 10 percent or more of the voting stock of such foreign
corporation is owned by a domestic corporation, or
(ii) the requirements of subsection (b)(2) are met with
respect to such foreign corporation.
(4) Foreign income taxes
(A) In general
The term "foreign income taxes" means any income, war
profits, or excess profits taxes paid by the foreign
corporation to any foreign country or possession of the United
States.
(B) Treatment of deemed taxes
Except for purposes of determining the amount of the
post-1986 foreign income taxes of a sixth tier foreign
corporation referred to in subsection (b)(2), the term "foreign
income taxes" includes any such taxes deemed to be paid by the
foreign corporation under this section.
(5) Accounting periods
In the case of a foreign corporation the income, war profits,
and excess profits taxes of which are determined on the basis of
an accounting period of less than 1 year, the word "year" as used
in this subsection shall be construed to mean such accounting
period.
(6) Treatment of distributions from earnings before 1987
(A) In general
In the case of any dividend paid by a foreign corporation out
of accumulated profits (as defined in this section as in effect
on the day before the date of the enactment of the Tax Reform
Act of 1986) for taxable years beginning before the 1st taxable
year taken into account in determining the post-1986
undistributed earnings of such corporation -
(i) this section (as amended by the Tax Reform Act of 1986)
shall not apply, but
(ii) this section (as in effect on the day before the date
of the enactment of such Act) shall apply.
(B) Dividends paid first out of post-1986 earnings
Any dividend in a taxable year beginning after December 31,
1986, shall be treated as made out of post-1986 undistributed
earnings to the extent thereof.
(7) Regulations
The Secretary shall provide such regulations as may be
necessary or appropriate to carry out the provisions of this
section and section 960, including provisions which provide for
the separate application of this section and section 960 to
reflect the separate application of section 904 to separate types
of income and loss.
(d) Cross references
(1) For inclusion in gross income of an amount equal to taxes
deemed paid under subsection (a), see section 78.
(2) For application of subsections (a) and (b) with respect
to taxes deemed paid in a prior taxable year by a United States
shareholder with respect to a controlled foreign corporation,
see section 960.
(3) For reduction of credit with respect to dividends paid
out of post-1986 undistributed earnings for years for which
certain information is not furnished, see section 6038.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 286; Pub. L. 86-780, Sec.
6(b)(2), Sept. 14, 1960, 74 Stat. 1016; Pub. L. 87-834, Sec. 9(a),
Oct. 16, 1962, 76 Stat. 999; Pub. L. 91-684, Secs. 1, 2, Jan. 12,
1971, 84 Stat. 2068, 2069; Pub. L. 94-12, title VI, Sec. 602(c)(6),
Mar. 29, 1975, 89 Stat. 59; Pub. L. 94-455, title X, Sec. 1033(a),
Oct. 4, 1976, 90 Stat. 1626; Pub. L. 99-514, title XII, Sec.
1202(a), Oct. 22, 1986, 100 Stat. 2528; Pub. L. 100-647, title I,
Sec. 1012(b)(1), (2), Nov. 10, 1988, 102 Stat. 3496; Pub. L.
105-34, title XI, Secs. 1113(a), 1163(a), Aug. 5, 1997, 111 Stat.
970, 987.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (c)(6)(A), is the date of enactment of Pub. L.
99-514, which was approved Oct. 22, 1986.
The Tax Reform Act of 1986, referred to in subsec. (c)(6)(A)(i),
is Pub. L. 99-514, Oct. 22, 1986, 100 Stat. 2085. For complete
classification of this Act to the Code, see Tables.
-MISC1-
AMENDMENTS
1997 - Subsec. (b). Pub. L. 105-34, Sec. 1113(a)(1), amended
subsec. (b) generally. Prior to amendment, subsec. (b) consisted of
pars. (1) to (3) relating to deemed taxes increased in case of
certain 2nd and 3rd tier foreign corporations.
Subsec. (c)(2)(B). Pub. L. 105-34, Sec. 1163(a), substituted
"attributable to" for "deemed paid with respect to".
Subsec. (c)(3). Pub. L. 105-34, Sec. 1113(a)(2)(C), substituted
"where foreign corporation first qualifies" for "where domestic
corporation acquires 10 percent of foreign corporation" in heading.
Pub. L. 105-34, Sec. 1113(a)(2)(D), struck out "ownership" after
"on which the" and "in which such" in subpar. (A) and before
"requirements of this subparagraph" in introductory provisions of
subpar. (B).
Subsec. (c)(3)(B). Pub. L. 105-34, Sec. 1113(a)(2)(A), inserted
"or" at end of cl. (i), added cl. (ii), and struck out former cls.
(ii) and (iii) which read as follows:
"(ii) the requirements of subsection (b)(3)(A) are met with
respect to such foreign corporation and 10 percent or more of the
voting stock of such foreign corporation is owned by another
foreign corporation described in clause (i), or
"(iii) the requirements of subsection (b)(3)(B) are met with
respect to such foreign corporation and 10 percent or more of the
voting stock of such foreign corporation is owned by another
foreign corporation described in clause (ii)."
Subsec. (c)(4)(B). Pub. L. 105-34, Sec. 1113(a)(2)(B),
substituted "sixth tier foreign corporation" for "3rd foreign
corporation".
1988 - Subsec. (c)(1). Pub. L. 100-647, Sec. 1012(b)(2),
substituted "sections 964(a) and 986" for "sections 964 and 986".
Subsec. (c)(7). Pub. L. 100-647, Sec. 1012(b)(1), substituted
"section 960" for "secton 960" and "this section and section 960"
for second reference to "this section".
1986 - Pub. L. 99-514 amended section generally, substituting
"Deemed paid credit where domestic corporation owns 10 percent or
more of voting stock of foreign corporation" for "Credit for
corporate stockholder in foreign corporation" as section catchline
and substituting present provisions generally relating to post-1986
earnings and taxes for former provisions which had provided in
subsec. (a) for a general rule with respect to treatment of taxes
paid by foreign corporations, in subsec. (b) for treatment of taxes
by a foreign subsidiary of first and second foreign corporations,
in subsec. (c) for rules defining accumulated profits and
determining accounting periods, and in subsec. (d) for cross
references.
1976 - Pub. L. 94-455, Sec. 1033(a), struck out provisions by
which dividends from less developed country corporations are not
grossed-up by the amount of foreign taxes paid on the underlying
income and the deemed-paid foreign tax credits attributable to
those dividends are reduced proportionately, struck out subsec. (d)
which defined less developed country corporations, and redesignated
subsec. (e) as (d).
1975 - Subsec. (d). Pub. L. 94-12 substituted "paragraph (3) or
(4)", "paragraph (3)", "paragraph (3)(A)", and "paragraph (3)(B)"
for "section 955(c)(1) or (2)", "section 955(c)(1)", "section
955(c)(1)(A)", and "section 955(c)(1)(B)", respectively, in
existing provisions and added pars. (3), (4), and (5) and
provisions following par. (5).
1971 - Subsec. (b). Pub. L. 91-684, Sec. 1, substituted "Foreign
subsidiary of first and second foreign corporation" for "Foreign
subsidiary of foreign corporation" in heading, designated existing
provisions as par. (1) and inserted terminology denominating
corporations involved as first foreign corporation and second
foreign corporation, and reduced the ownership percentage
requirement in voting stock from 50 percent to 10 percent between
the first and second foreign corporations, and added pars. (2) and
(3).
Subsec. (c)(1)(A). Pub. L. 91-684, Sec. 2(1), substituted
"(b)(1)(A), and (b)(2)(A)" for "and (b)(1)".
Subsec. (c)(1)(B). Pub. L. 91-684, Sec. 2(2), substituted
"(b)(1)(B), and (b)(2)(B)" for "and (b)(2)".
1962 - Subsec. (a). Pub. L. 87-834 limited provisions which
required a domestic corporation owning at least 10 per cent of the
voting stock of a foreign corporation from which it receives
dividends in any taxable year to be deemed to have paid the same
proportion of any income, war profits, or excess profits taxes paid
or deemed to be paid by such foreign corporation to any foreign
country or to any possession of the United States which the amount
of such dividends bears to the amount of accumulated profits to
those cases where a foreign corporation paid such dividends out of
accumulated profits of a year for which such foreign corporation is
a less developed country corporation, and inserted provisions
requiring, in the case of a domestic corporation which owns at
least 10 percent of the voting stock of a foreign corporation from
which it receives dividends in a taxable year, to the extent such
dividends are paid by such foreign corporation out of accumulated
profits of a year for which such foreign corporation is not a less
developed country corporation, to be deemed to have paid the same
proportion of any income, war profits, or excess profits taxes paid
or deemed to be paid by such foreign corporation to any foreign
country or to any possession of the United States on or with
respect to such accumulated profits, which the amount of such
dividends (determined without regard to section 78) bears to the
amount of such accumulated profits in excess of such income, war
profits, and excess profits taxes (other than those deemed paid).
Subsec. (b). Pub. L. 87-834 substituted "from which such
dividends were paid which -
"(1) for purposes of applying subsection (a)(1), the amount of
such dividends bears to the amount of the accumulated profits (as
defined in subsection (c)(1)(A)) of such other foreign
corporation from which such dividends were paid in excess of such
income, war profits, and excess profits taxes, or
"(2) for purposes of applying subsection (a)(2), the amount of
such dividends bears to the amount of the accumulated profits (as
defined in subsection (c)(1)(B)) of such other foreign
corporation from which such dividends were paid"
for "from which such dividends were paid, which the amount of such
dividends bears to the amount of such accumulated profits".
Subsec. (c). Pub. L. 87-834 defined "accumulated profits" for
purposes of subsecs. (a)(1) and (b)(1) as meaning the amount of its
gains, profits, or income computed without reduction by the amount
of the income, war profits, and excess profits taxes imposed on or
with respect to such profits or income by and foreign country or
any possession of the United States, and limited provisions
defining "accumulated profits" as the amount of its gains, profits,
or income in excess of the income, war profits, and excess profits
taxes imposed on or with respect to such profits or income to
subsecs. (a)(2) and (b)(2).
Subsec. (d). Pub. L. 87-834 substituted provisions defining "less
developed country corporation" for provisions which established
special rules for certain wholly-owned foreign corporations.
Subsec. (e). Pub. L. 87-834 designated existing provisions as
par. (3) and added pars. (1) and (2).
1960 - Subsec. (e). Pub. L. 86-780 added subsec. (e).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1113(c) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 960 of this title] shall apply to taxes of
foreign corporations for taxable years of such corporations
beginning after the date of enactment of this Act [Aug. 5, 1997].
"(2) Special rule. - In the case of any chain of foreign
corporations described in clauses (i) and (ii) of section
902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended by
this section), no liquidation, reorganization, or similar
transaction in a taxable year beginning after the date of the
enactment of this Act shall have the effect of permitting taxes to
be taken into account under section 902 of the Internal Revenue
Code of 1986 which could not have been taken into account under
such section but for such transaction."
Section 1163(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and section 904 of this
title] shall take effect on the date of the enactment of this Act
[Aug. 5, 1997]."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1202(e) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 960 and
6038 of this title] shall apply to distributions by foreign
corporations out of, and to inclusions under section 951(a) of the
Internal Revenue Code of 1986 attributable to, earnings and profits
for taxable years beginning after December 31, 1986."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1033(c) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and sections
78, 535, 545, and 960 of this title] shall apply -
"(1) in respect of any distribution received by a domestic
corporation after December 31, 1977, and
"(2) in respect of any distribution received by a domestic
corporation before January 1, 1978, in a taxable year of such
corporation beginning after December 31, 1975, 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 December 31, 1975.
For purposes of paragraph (2), a distribution made by a foreign
corporation out of its profits which are attributable to a
distribution received from a foreign corporation to which section
902(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
applies shall be treated as made out of the accumulated profits of
a foreign corporation for a taxable year beginning before January
1, 1976, to the extent that such distribution was paid out of the
accumulated profits of such foreign corporation for a taxable year
beginning before January 1, 1976."
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 applicable to taxable years of foreign
corporations beginning after Dec. 31, 1975, and to taxable years of
United States shareholders (within the meaning of section 951(b) of
this title) within which or with which such taxable years of such
foreign corporations end, see section 602(f) of Pub. L. 94-12, set
out as an Effective Date note under section 955 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 3 of Pub. L. 91-684 provided that: "The amendments made
by this Act [amending this section] shall apply with respect to all
taxable years of domestic corporations, ending after the date of
enactment of this Act [Jan. 12, 1971], but only in respect of
dividends paid by one corporation to another corporation after the
date of the enactment of this Act."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 9(e) of Pub. L. 87-834 provided that: "The amendments
made by this section [enacting section 78 of this title and
amending this section and sections 535, 545, 861, and 901 of this
title] shall apply -
"(1) in respect of any distribution received by a domestic
corporation after December 31, 1964, and
"(2) in respect of any distribution received by a domestic
corporation before January 1, 1965, in a taxable year of such
corporation beginning after December 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 December 31, 1962.
For purposes of paragraph (2), a distribution made by a foreign
corporation out of its profits which are attributable to a
distribution received from a foreign subsidiary to which section
902(b) applies shall be treated as made out of the accumulated
profits of a foreign corporation for a taxable year beginning
before January 1, 1963, to the extent that such distribution was
paid out of the accumulated profits of such foreign subsidiary for
a taxable year beginning before January 1, 1963."
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-780 applicable to taxable years beginning
after Dec. 31, 1960, see section 6(c) of Pub. L. 86-780), set out
as an Effective Date note under section 6038 of this title.
INCREASE IN EARNINGS AND PROFITS OF FOREIGN CORPORATIONS UNDER
SECTION 1023(E)(3)(C) OF PUB. L. 99-514
Section 1012(b)(3) of Pub. L. 100-647 provided that: "For
purposes of sections 902 and 960 of the 1986 Code, the increase in
earnings and profits of any foreign corporation under section
1023(e)(3)(C) of the Reform Act [Pub. L. 99-514, set out as an
Effective Date note under section 846 of this title] shall be taken
into account ratably over the 10-year period beginning with the
corporation's first taxable year beginning after December 31,
1986."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 78, 245, 535, 545,
814, 865, 901, 904, 905, 906, 907, 908, 954, 960, 1248, 1291, 6038
of this title.
-End-
-CITE-
26 USC Sec. 903 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
Sec. 903. Credit for taxes in lieu of income, etc., taxes
-STATUTE-
For purposes of this part and of sections 114, 164(a), and
275(a), the term "income, war profits, and excess profits taxes"
shall include a tax paid in lieu of a tax on income, war profits,
or excess profits otherwise generally imposed by any foreign
country or by any possession of the United States.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 287; Pub. L. 88-272, title II,
Sec. 207(b)(8), Feb. 26, 1964, 78 Stat. 42; Pub. L. 100-647, title
I, Sec. 1012(v)(9), Nov. 10, 1988, 102 Stat. 3530; Pub. L. 106-519,
Sec. 4(4), Nov. 15, 2000, 114 Stat. 2433.)
-MISC1-
AMENDMENTS
2000 - Pub. L. 106-519 substituted "114, 164(a)," for "164(a)".
1988 - Pub. L. 100-647 substituted "this part" for "this
subpart".
1964 - Pub. L. 88-272 substituted "sections 164(a) and 275(a)"
for "section 164(b)".
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-519 applicable to transactions after
Sept. 30, 2000, with special rules relating to existing foreign
sales corporations, see section 5 of Pub. L. 106-519, set out as an
Effective Date note under section 941 of this title.
EFFECTIVE DATE OF 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 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 207(c) of Pub. L. 88-272, set out
as a note under section 164 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 877, 943 of this title.
-End-
-CITE-
26 USC Sec. 904 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
Sec. 904. Limitation on credit
-STATUTE-
(a) Limitation
The total amount of the credit taken under section 901(a) shall
not exceed the same proportion of the tax against which such credit
is taken which the taxpayer's taxable income from sources without
the United States (but not in excess of the taxpayer's entire
taxable income) bears to his entire taxable income for the same
taxable year.
(b) Taxable income for purpose of computing limitation
(1) Personal exemptions
For purposes of subsection (a), the taxable income in the case
of an individual, estate, or trust shall be computed without any
deduction for personal exemptions under section 151 or 642(b).
(2) Capital gains
For purposes of this section -
(A) In general
Taxable income from sources outside the United States shall
include gain from the sale or exchange of capital assets only
to the extent of foreign source capital gain net income.
(B) Special rules where capital gain rate differential
In the case of any taxable year for which there is a capital
gain rate differential -
(i) in lieu of applying subparagraph (A), the taxable
income from sources outside the United States shall include
gain from the sale or exchange of capital assets only in an
amount equal to foreign source capital gain net income
reduced by the rate differential portion of foreign source
net capital gain,
(ii) the entire taxable income shall include gain from the
sale or exchange of capital assets only in an amount equal to
capital gain net income reduced by the rate differential
portion of net capital gain, and
(iii) for purposes of determining taxable income from
sources outside the United States, any net capital loss (and
any amount which is a short-term capital loss under section
1212(a)) from sources outside the United States to the extent
taken into account in determining capital gain net income for
the taxable year shall be reduced by an amount equal to the
rate differential portion of the excess of net capital gain
from sources within the United States over net capital gain.
(C) Coordination with capital gains rates
The Secretary may by regulations modify the application of
this paragraph and paragraph (3) to the extent necessary to
properly reflect any capital gain rate differential under
section 1(h) or 1201(a) and the computation of net capital
gain.
(3) Definitions
For purposes of this subsection -
(A) Foreign source capital gain net income
The term "foreign source capital gain net income" means the
lesser of -
(i) capital gain net income from sources without the United
States, or
(ii) capital gain net income.
(B) Foreign source net capital gain
The term "foreign source net capital gain" means the lesser
of -
(i) net capital gain from sources without the United
States, or
(ii) net capital gain.
(C) Section 1231 gains
The term "gain from the sale or exchange of capital assets"
includes any gain so treated under section 1231.
(D) Capital gain rate differential
There is a capital gain rate differential for any taxable
year if -
(i) in the case of a taxpayer other than a corporation,
subsection (h) of section 1 applies to such taxable year, or
(ii) in the case of a corporation, any rate of tax imposed
by section 11, 511, or 831(a) or (b) (whichever applies)
exceeds the alternative rate of tax under section 1201(a)
(determined without regard to the last sentence of section
11(b)(1)).
(E) Rate differential portion
(i) In general
The rate differential portion of foreign source net capital
gain, net capital gain, or the excess of net capital gain
from sources within the United States over net capital gain,
as the case may be, is the same proportion of such amount as
-
(I) the excess of the highest applicable tax rate over
the alternative tax rate, bears to
(II) the highest applicable tax rate.
(ii) Highest applicable tax rate
For purposes of clause (i), the term "highest applicable
tax rate" means -
(I) in the case of a taxpayer other than a corporation,
the highest rate of tax set forth in subsection (a), (b),
(c), (d), or (e) of section 1 (whichever applies), or
(II) in the case of a corporation, the highest rate of
tax specified in section 11(b).
(iii) Alternative tax rate
For purposes of clause (i), the term "alternative tax rate"
means -
(I) in the case of a taxpayer other than a corporation,
the alternative rate of tax determined under section 1(h),
or
(II) in the case of a corporation, the alternative rate
of tax under section 1201(a).
(4) Coordination with section 936
For purposes of subsection (a), in the case of a corporation,
the taxable income shall not include any portion thereof taken
into account for purposes of the credit (if any) allowed by
section 936 (without regard to subsections (a)(4) and (i)
thereof).
(c) Carryback and carryover of excess tax paid
Any amount by which all taxes paid or accrued to foreign
countries or possessions of the United States for any taxable year
for which the taxpayer chooses to have the benefits of this subpart
exceed the limitation under subsection (a) shall be deemed taxes
paid or accrued to foreign countries or possessions of the United
States in the second preceding taxable year, in the first preceding
taxable year, and in the first, second, third, fourth, or fifth
succeeding taxable years, in that order and to the extent not
deemed taxes paid or accrued in a prior taxable year, in the amount
by which the limitation under subsection (a) for such preceding or
succeeding taxable year exceeds the sum of the taxes paid or
accrued to foreign countries or possessions of the United States
for such preceding or succeeding taxable year and the amount of the
taxes for any taxable year earlier than the current taxable year
which shall be deemed to have been paid or accrued in such
preceding or subsequent taxable year (whether or not the taxpayer
chooses to have the benefits of this subpart with respect to such
earlier taxable year). Such amount deemed paid or accrued in any
year may be availed of only as a tax credit and not as a deduction
and only if the taxpayer for such year chooses to have the benefits
of this subpart as to taxes paid or accrued for that year to
foreign countries or possessions of the United States.
(d) Separate application of section with respect to certain
categories of income
(1) In general
The provisions of subsections (a), (b), and (c) and sections
902, 907, and 960 shall be applied separately with respect to
each of the following items of income:
(A) passive income,
(B) high withholding tax interest,
(C) financial services income,
(D) shipping income,
(E) in the case of a corporation, dividends from
noncontrolled section 902 corporations out of earnings and
profits accumulated in taxable years beginning before January
1, 2003,
(F) dividends from a DISC or former DISC (as defined in
section 992(a)) to the extent such dividends are treated as
income from sources without the United States,
(G) taxable income attributable to foreign trade income
(within the meaning of section 923(b)),(!1)
(H) distributions from a FSC (or a former FSC) out of
earnings and profits attributable to foreign trade income
(within the meaning of section 923(b)) (!1) or interest or
carrying charges (as defined in section 927(d)(1)) (!1) derived
from a transaction which results in foreign trade income (as
defined in section 923(b)) (!1), and
(I) income other than income described in any of the
preceding subparagraphs.
(2) Definitions and special rules
For purposes of this subsection -
(A) Passive income
(i) In general
Except as otherwise provided in this subparagraph, the term
"passive income" means any income received or accrued by any
person which is of a kind which would be foreign personal
holding company income (as defined in section 954(c)).
(ii) Certain amounts included
Except as provided in clause (iii), the term "passive
income" includes any amount includible in gross income under
section 551 or, except as provided in subparagraph (E)(iii)
or paragraph (3)(I), section 1293 (relating to certain
passive foreign investment companies).
(iii) Exceptions
The term "passive income" shall not include -
(I) any income described in a subparagraph of paragraph
(1) other than subparagraph (A),
(II) any export financing interest, and
(III) any high-taxed income.
(iv) Clarification of application of section 864(d)(6)
In determining whether any income is of a kind which would
be foreign personal holding company income, the rules of
section 864(d)(6) shall apply only in the case of income of a
controlled foreign corporation.
(B) High withholding tax interest
(i) In general
Except as otherwise provided in this subparagraph, the term
"high withholding tax interest" means any interest if -
(I) such interest is subject to a withholding tax of a
foreign country or possession of the United States (or
other tax determined on a gross basis), and
(II) the rate of such tax applicable to such interest is
at least 5 percent.
(ii) Exception for export financing
The term "high withholding tax interest" shall not include
any export financing interest.
(iii) Regulations
The Secretary may by regulations provide that -
(I) amounts (not otherwise high withholding tax interest)
shall be treated as high withholding tax interest where
necessary to prevent avoidance of the purposes of this
subparagraph, and
(II) a tax shall not be treated as a withholding tax or
other tax imposed on a gross basis if such tax is in the
nature of a prepayment of a tax imposed on a net basis.
(C) Financial services income
(i) In general
Except as otherwise provided in this subparagraph, the term
"financial services income" means any income which is
received or accrued by any person predominantly engaged in
the active conduct of a banking, insurance, financing, or
similar business, and which is -
(I) described in clause (ii),
(II) passive income (determined without regard to
subclauses (I) and (III) of subparagraph (A)(iii)), or
(III) export financing interest which (but for
subparagraph (B)(ii)) would be high withholding tax
interest.
(ii) General description of financial services income
Income is described in this clause if such income is -
(I) derived in the active conduct of a banking,
financing, or similar business,
(II) derived from the investment by an insurance company
of its unearned premiums or reserves ordinary and necessary
for the proper conduct of its insurance business, or
(III) of a kind which would be insurance income as
defined in section 953(a) determined without regard to
those provisions of paragraph (1)(A) of such section which
limit insurance income to income from countries other than
the country in which the corporation was created or
organized.
(iii) Exceptions
The term "financial services income" does not include -
(I) any high withholding tax interest,
(II) any dividend from a noncontrolled section 902
corporation out of earnings and profits accumulated in
taxable years beginning before January 1, 2003, and
(III) any export financing interest not described in
clause (i)(III).
(D) Shipping income
The term "shipping income" means any income received or
accrued by any person which is of a kind which would be foreign
base company shipping income (as defined in section 954(f)).
Such term does not include any dividend from a noncontrolled
section 902 corporation out of earnings and profits accumulated
in taxable years beginning before January 1, 2003 and does not
include any financial services income.
(E) Noncontrolled section 902 corporation
(i) In general
The term "noncontrolled section 902 corporation" means any
foreign corporation with respect to which the taxpayer meets
the stock ownership requirements of section 902(a) (or, for
purposes of applying paragraph (3), the requirements of
section 902(b)). A controlled foreign corporation shall not
be treated as a noncontrolled section 902 corporation with
respect to any distribution out of its earnings and profits
for periods during which it was a controlled foreign
corporation.
(ii) Special rule for taxes on high-withholding tax interest
If a foreign corporation is a noncontrolled section 902
corporation with respect to the taxpayer, taxes on high
withholding tax interest (to the extent imposed at a rate in
excess of 5 percent) shall not be treated as foreign taxes
for purposes of determining the amount of foreign taxes
deemed paid by the taxpayer under section 902.
(iii) Treatment of inclusions under section 1293
If any foreign corporation is a non-controlled section 902
corporation with respect to the taxpayer, any inclusion under
section 1293 with respect to such corporation shall be
treated as a dividend from such corporation.
(iv) All non-PFICs treated as one
All noncontrolled section 902 corporations which are not
passive foreign investment companies (as defined in section
1297) shall be treated as one noncontrolled section 902
corporation for purposes of paragraph (1).
(F) High-taxed income
The term "high-taxed income" means any income which (but for
this subparagraph) would be passive income if the sum of -
(i) the foreign income taxes paid or accrued by the
taxpayer with respect to such income, and
(ii) the foreign income taxes deemed paid by the taxpayer
with respect to such income under section 902 or 960,
exceeds the highest rate of tax specified in section 1 or 11
(whichever applies) multiplied by the amount of such income
(determined with regard to section 78). For purposes of the
preceding sentence, the term "foreign income taxes" means any
income, war profits, or excess profits tax imposed by any
foreign country or possession of the United States.
(G) Export financing interest
For purposes of this paragraph, the term "export financing
interest" means any interest derived from financing the sale
(or other disposition) for use or consumption outside the
United States of any property -
(i) which is manufactured, produced, grown, or extracted in
the United States by the taxpayer or a related person, and
(ii) not more than 50 percent of the fair market value of
which is attributable to products imported into the United
States.
For purposes of clause (ii), the fair market value of any
property imported into the United States shall be its appraised
value, as determined by the Secretary under section 402 of the
Tariff Act of 1930 (19 U.S.C. 1401a) in connection with its
importation.
(H) Related person
For purposes of this paragraph, the term "related person" has
the meaning given such term by section 954(d)(3), except that
such section shall be applied by substituting "the person with
respect to whom the determination is being made" for
"controlled foreign corporation" each place it appears.
(I) Transitional rule
For purposes of paragraph (1) -
(i) taxes paid or accrued in a taxable year beginning
before January 1, 1987, with respect to income which was
described in subparagraph (A) of paragraph (1) (as in effect
on the day before the date of the enactment of the Tax Reform
Act of 1986) shall be treated as taxes paid or accrued with
respect to income described in subparagraph (A) of paragraph
(1) (as in effect after such date),
(ii) taxes paid or accrued in a taxable year beginning
before January 1, 1987, with respect to income which was
described in subparagraph (E) of paragraph (1) (as in effect
on the day before the date of the enactment of the Tax Reform
Act of 1986) shall be treated as taxes paid or accrued with
respect to income described in subparagraph (I) of paragraph
(1) (as in effect after such date) except that -
(I) such taxes shall be treated as paid or accrued with
respect to shipping income to the extent the taxpayer
establishes to the satisfaction of the Secretary that such
taxes were paid or accrued with respect to such income,
(II) in the case of a person described in subparagraph
(C)(i), such taxes shall be treated as paid or accrued with
respect to financial services income to the extent the
taxpayer establishes to the satisfaction of the Secretary
that such taxes were paid or accrued with respect to such
income, and
(III) such taxes shall be treated as paid or accrued with
respect to high withholding tax interest to the extent the
taxpayer establishes to the satisfaction of the Secretary
that such taxes were paid or accrued with respect to such
income, and
(iii) taxes paid or accrued in a taxable year beginning
before January 1, 1987, with respect to income described in
any other subparagraph of paragraph (1) (as so in effect
before such date) shall be treated as taxes paid or accrued
with respect to income described in the corresponding
subparagraph of paragraph (1) (as so in effect after such
date).
(3) Look-thru in case of controlled foreign corporations
(A) In general
Except as otherwise provided in this paragraph, dividends,
interest, rents, and royalties received or accrued by the
taxpayer from a controlled foreign corporation in which the
taxpayer is a United States shareholder shall not be treated as
income in a separate category.
(B) Subpart F inclusions
Any amount included in gross income under section
951(a)(1)(A) shall be treated as income in a separate category
to the extent the amount so included is attributable to income
in such category.
(C) Interest, rents, and royalties
Any interest, rent, or royalty which is received or accrued
from a controlled foreign corporation in which the taxpayer is
a United States shareholder shall be treated as income in a
separate category to the extent it is properly allocable (under
regulations prescribed by the Secretary) to income of the
controlled foreign corporation in such category.
(D) Dividends
Any dividend paid out of the earnings and profits of any
controlled foreign corporation in which the taxpayer is a
United States shareholder shall be treated as income in a
separate category in proportion to the ratio of -
(i) the portion of the earnings and profits attributable to
income in such category, to
(ii) the total amount of earnings and profits.
(E) Look-thru applies only where subpart F applies
If a controlled foreign corporation meets the requirements of
section 954(b)(3)(A) (relating to de minimis rule) for any
taxable year, for purposes of this paragraph, none of its
foreign base company income (as defined in section 954(a)
without regard to section 954(b)(5)) and none of its gross
insurance income (as defined in section 954(b)(3)(C)) for such
taxable year shall be treated as income in a separate category,
except that this sentence shall not apply to any income which
(without regard to this sentence) would be treated as financial
services income. Solely for purposes of applying subparagraph
(D), passive income of a controlled foreign corporation shall
not be treated as income in a separate category if the
requirements of section 954(b)(4) are met with respect to such
income.
(F) Separate category
For purposes of this paragraph -
(i) In general
Except as provided in clause (ii), the term "separate
category" means any category of income described in
subparagraph (A), (B), (C), (D), or (E) of paragraph (1).
(ii) Coordination with high-taxed income provisions
(I) In determining whether any income of a controlled
foreign corporation is in a separate category, subclause
(III) of paragraph (2)(A)(iii) shall not apply.
(II) Any income of the taxpayer which is treated as income
in a separate category under this paragraph shall be so
treated notwithstanding any provision of paragraph (2);
except that the determination of whether any amount is
high-taxed income shall be made after the application of this
paragraph.
(G) Dividend
For purposes of this paragraph, the term "dividend" includes
any amount included in gross income in section 951(a)(1)(B).
Any amount included in gross income under section 78 to the
extent attributable to amounts included in gross income in
section 951(a)(1)(A) shall not be treated as a dividend but
shall be treated as included in gross income under section
951(a)(1)(A).
(H) Exception for certain high withholding tax interest
This paragraph shall not apply to any amount which -
(i) without regard to this paragraph, is high withholding
tax interest (including any amount treated as high
withholding tax interest under paragraph (2)(B)(iii)), and
(ii) would (but for this subparagraph) be treated as
financial services income under this paragraph.
The amount to which this paragraph does not apply by reason of
the preceding sentence shall not exceed the interest or
equivalent income of the controlled foreign corporation taken
into account in determining financial services income without
regard to this subparagraph.
(I) Look-thru applies to passive foreign investment company
inclusion
If -
(i) a passive foreign investment company is a controlled
foreign corporation, and
(ii) the taxpayer is a United States shareholder in such
controlled foreign corporation,
any amount included in gross income under section 1293 shall be
treated as income in a separate category to the extent such
amount is attributable to income in such category.
(4) Look-thru applies to dividends from noncontrolled section 902
corporations
(A) In general
For purposes of this subsection, any applicable dividend
shall be treated as income in a separate category in proportion
to the ratio of -
(i) the portion of the earnings and profits described in
subparagraph (B)(ii) attributable to income in such category,
to
(ii) the total amount of such earnings and profits.
(B) Applicable dividend
For purposes of subparagraph (A), the term "applicable
dividend" means any dividend -
(i) from a noncontrolled section 902 corporation with
respect to the taxpayer, and
(ii) paid out of earnings and profits accumulated in
taxable years beginning after December 31, 2002.
(C) Special rules
(i) In general
Rules similar to the rules of paragraph (3)(F) shall apply
for purposes of this paragraph.
(ii) Earnings and profits
For purposes of this paragraph and paragraph (1)(E) -
(I) In general
The rules of section 316 shall apply.
(II) Regulations
The Secretary may prescribe regulations regarding the
treatment of distributions out of earnings and profits for
periods prior to the taxpayer's acquisition of such stock.
(5) Controlled foreign corporation; United States shareholder
For purposes of this subsection -
(A) Controlled foreign corporation
The term "controlled foreign corporation" has the meaning
given such term by section 957 (taking into account section
953(c)).
(B) United States shareholder
The term "United States shareholder" has the meaning given
such term by section 951(b) (taking into account section
953(c)).
(6) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate for the purposes of this subsection,
including regulations -
(A) for the application of paragraph (3) and subsection
(f)(5) in the case of income paid (or loans made) through 1 or
more entities or between 2 or more chains of entities,
(B) preventing the manipulation of the character of income
the effect of which is to avoid the purposes of this
subsection, and
(C) providing that rules similar to the rules of paragraph
(3)(C) shall apply to interest, rents, and royalties received
or accrued from entities which would be controlled foreign
corporations if they were foreign corporations.
[(e) Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(31), Nov.
5, 1990, 104 Stat. 1388-521]
(f) Recapture of overall foreign loss
(1) General rule
For purposes of this subpart and section 936, in the case of
any taxpayer who sustains an overall foreign loss for any taxable
year, that portion of the taxpayer's taxable income from sources
without the United States for each succeeding taxable year which
is equal to the lesser of -
(A) the amount of such loss (to the extent not used under
this paragraph in prior taxable years), or
(B) 50 percent (or such larger percent as the taxpayer may
choose) of the taxpayer's taxable income from sources without
the United States for such succeeding taxable year,
shall be treated as income from sources within the United States
(and not as income from sources without the United States).
(2) Overall foreign loss defined
For purposes of this subsection, the term "overall foreign
loss" means the amount by which the gross income for the taxable
year from sources without the United States (whether or not the
taxpayer chooses the benefits of this subpart for such taxable
year) for such year is exceeded by the sum of the deductions
properly apportioned or allocated thereto, except that there
shall not be taken into account -
(A) any net operating loss deduction allowable for such year
under section 172(a), and
(B) any -
(i) foreign expropriation loss for such year, as defined in
section 172(h) (as in effect on the day before the date of
the enactment of the Revenue Reconciliation Act of 1990), or
(ii) loss for such year which arises from fire, storm,
shipwreck, or other casualty, or from theft,
to the extent such loss is not compensated for by insurance or
otherwise.
(3) Dispositions
(A) In general
For purposes of this chapter, if property which has been used
predominantly without the United States in a trade or business
is disposed of during any taxable year -
(i) the taxpayer, notwithstanding any other provision of
this chapter (other than paragraph (1)), shall be deemed to
have received and recognized taxable income from sources
without the United States in the taxable year of the
disposition, by reason of such disposition, in an amount
equal to the lesser of the excess of the fair market value of
such property over the taxpayer's adjusted basis in such
property or the remaining amount of the overall foreign
losses which were not used under paragraph (1) for such
taxable year or any prior taxable year, and
(ii) paragraph (1) shall be applied with respect to such
income by substituting "100 percent" for "50 percent".
In determining for purposes of this subparagraph whether the
predominant use of any property has been without the United
States, there shall be taken into account use during the 3-year
period ending on the date of the disposition (or, if shorter,
the period during which the property has been used in the trade
or business).
(B) Disposition defined and special rules
(i) For purposes of this subsection, the term "disposition"
includes a sale, exchange, distribution, or gift of property
whether or not gain or loss is recognized on the transfer.
(ii) Any taxable income recognized solely by reason of
subparagraph (A) shall have the same characterization it would
have had if the taxpayer had sold or exchanged the property.
(iii) The Secretary shall prescribe such regulations as he
may deem necessary to provide for adjustments to the basis of
property to reflect taxable income recognized solely by reason
of subparagraph (A).
(C) Exceptions
Notwithstanding subparagraph (B), the term "disposition" does
not include -
(i) a disposition of property which is not a material
factor in the realization of income by the taxpayer, or
(ii) a disposition of property to a domestic corporation in
a distribution or transfer described in section 381(a).
(4) Accumulation distributions of foreign trust
For purposes of this chapter, in the case of amounts of income
from sources without the United States which are treated under
section 666 (without regard to subsections (b) and (c) thereof if
the taxpayer chose to take a deduction with respect to the
amounts described in such subsections under section 667(d)(1)(B))
as having been distributed by a foreign trust in a preceding
taxable year, that portion of such amounts equal to the amount of
any overall foreign loss sustained by the beneficiary in a year
prior to the taxable year of the beneficiary in which such
distribution is received from the trust shall be treated as
income from sources within the United States (and not income from
sources without the United States) to the extent that such loss
was not used under this subsection in prior taxable years, or in
the current taxable year, against other income of the
beneficiary.
(5) Treatment of separate limitation losses
(A) In general
The amount of the separate limitation losses for any taxable
year shall reduce income from sources within the United States
for such taxable year only to the extent the aggregate amount
of such losses exceeds the aggregate amount of the separate
limitation incomes for such taxable year.
(B) Allocation of losses
The separate limitation losses for any taxable year (to the
extent such losses do not exceed the separate limitation
incomes for such year) shall be allocated among (and operate to
reduce) such incomes on a proportionate basis.
(C) Recharacterization of subsequent income
If -
(i) a separate limitation loss from any income category
(hereinafter in this subparagraph referred to as "the loss
category") was allocated to income from any other category
under subparagraph (B), and
(ii) the loss category has income for a subsequent taxable
year,
such income (to the extent it does not exceed the aggregate
separate limitation losses from the loss category not
previously recharacterized under this subparagraph) shall be
recharacterized as income from such other category in
proportion to the prior reductions under subparagraph (B) in
such other category not previously taken into account under
this subparagraph. Nothing in the preceding sentence shall be
construed as recharacterizing any tax.
(D) Special rules for losses from sources in the United States
Any loss from sources in the United States for any taxable
year (to the extent such loss does not exceed the separate
limitation incomes from such year) shall be allocated among
(and operate to reduce) such incomes on a proportionate basis.
This subparagraph shall be applied after subparagraph (B).
(E) Definitions
For purposes of this paragraph -
(i) Income category
The term "income category" means each separate category of
income described in subsection (d)(1).
(ii) Separate limitation income
The term "separate limitation income" means, with respect
to any income category, the taxable income from sources
outside the United States, separately computed for such
category.
(iii) Separate limitation loss
The term "separate limitation loss" means, with respect to
any income category, the loss from such category determined
under the principles of section 907(c)(4)(B).
(F) Dispositions
If any separate limitation loss for any taxable year is
allocated against any separate limitation income for such
taxable year, except to the extent provided in regulations,
rules similar to the rules of paragraph (3) shall apply to any
disposition of property if gain from such disposition would be
in the income category with respect to which there was such
separate limitation loss.
(g) Source rules in case of United States-owned foreign
corporations
(1) In general
The following amounts which are derived from a United
States-owned foreign corporation and which would be treated as
derived from sources outside the United States without regard to
this subsection shall, for purposes of this section, be treated
as derived from sources within the United States to the extent
provided in this subsection:
(A) Any amount included in gross income under -
(i) section 951(a) (relating to amounts included in gross
income of United States shareholders),
(ii) section 551 (relating to foreign personal holding
company income taxed to United States shareholders), or
(iii) section 1293 (relating to current taxation of income
from qualified funds).
(B) Interest.
(C) Dividends.
(2) Subpart F and foreign personal holding or passive foreign
investment company inclusions
Any amount described in subparagraph (A) of paragraph (1) shall
be treated as derived from sources within the United States to
the extent such amount is attributable to income of the United
States-owned foreign corporation from sources within the United
States.
(3) Certain interest allocable to United States source income
Any interest which -
(A) is paid or accrued by a United States-owned foreign
corporation during any taxable year,
(B) is paid or accrued to a United States shareholder (as
defined in section 951(b)) or a related person (within the
meaning of section 267(b)) to such a shareholder, and
(C) is properly allocable (under regulations prescribed by
the Secretary) to income of such foreign corporation for the
taxable year from sources within the United States,
shall be treated as derived from sources within the United
States.
(4) Dividends
(A) In general
The United States source ratio of any dividend paid or
accrued by a United States-owned foreign corporation shall be
treated as derived from sources within the United States.
(B) United States source ratio
For purposes of subparagraph (A), the term "United States
source ratio" means, with respect to any dividend paid out of
the earnings and profits for any taxable year, a fraction -
(i) the numerator of which is the portion of the earnings
and profits for such taxable year from sources within the
United States, and
(ii) the denominator of which is the total amount of
earnings and profits for such taxable year.
(5) Exception where United States-owned foreign corporation has
small amount of United States source income
Paragraph (3) shall not apply to interest paid or accrued
during any taxable year (and paragraph (4) shall not apply to any
dividends paid out of the earnings and profits for such taxable
year) if -
(A) the United States-owned foreign corporation has earnings
and profits for such taxable year, and
(B) less than 10 percent of such earnings and profits is
attributable to sources within the United States.
For purposes of the preceding sentence, earnings and profits
shall be determined without any reduction for interest described
in paragraph (3) (determined without regard to subparagraph (C)
thereof).
(6) United States-owned foreign corporation
For purposes of this subsection, the term "United States-owned
foreign corporation" means any foreign corporation if 50 percent
or more of -
(A) the total combined voting power of all classes of stock
of such corporation entitled to vote, or
(B) the total value of the stock of such corporation,
is held directly (or indirectly through applying paragraphs (2)
and (3) of section 958(a) and paragraph (4) of section 318(a)) by
United States persons (as defined in section 7701(a)(30)).
(7) Dividend
For purposes of this subsection, the term "dividend" includes
any gain treated as ordinary income under section 1246 or as a
dividend under section 1248.
(8) Coordination with subsection (f)
This subsection shall be applied before subsection (f).
(9) Treatment of certain domestic corporations
For purposes of this subsection -
(A) in the case of interest treated as not from sources
within the United States under section 861(a)(1)(A), the
corporation paying such interest shall be treated as a United
States-owned foreign corporation, and
(B) in the case of any dividend treated as not from sources
within the United States under section 861(a)(2)(A), the
corporation paying such dividend shall be treated as a United
States-owned foreign corporation.
(10) Coordination with treaties
(A) In general
If -
(i) any amount derived from a United States-owned foreign
corporation would be treated as derived from sources within
the United States under this subsection by reason of an item
of income of such United States-owned foreign corporation,
(ii) under a treaty obligation of the United States
(applied without regard to this subsection and by treating
any amount included in gross income under section 951(a)(1)
as a dividend), such amount would be treated as arising from
sources outside the United States, and
(iii) the taxpayer chooses the benefits of this paragraph,
this subsection shall not apply to such amount to the extent
attributable to such item of income (but subsections (a), (b),
and (c) of this section and sections 902, 907, and 960 shall be
applied separately with respect to such amount to the extent so
attributable).
(B) Special rule
Amounts included in gross income under section 951(a)(1)
shall be treated as a dividend under subparagraph (A)(ii) only
if dividends paid by each corporation (the stock in which is
taken into account in determining whether the shareholder is a
United States shareholder in the United States-owned foreign
corporation), if paid to the United States shareholder, would
be treated under a treaty obligation of the United States as
arising from sources outside the United States (applied without
regard to this subsection).
(11) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate for purposes of this subsection,
including -
(A) regulations for the application of this subsection in the
case of interest or dividend payments through 1 or more
entities, and
(B) regulations providing that this subsection shall apply to
interest paid or accrued to any person (whether or not a United
States shareholder).
(h) Coordination with nonrefundable personal credits
In the case of an individual, for purposes of subsection (a), the
tax against which the credit is taken is such tax reduced by the
sum of the credits allowable under subpart A of part IV of
subchapter A of this chapter (other than sections 23, 24, and 25B).
This subsection shall not apply to taxable years beginning during
2000, 2001, 2002, or 2003.
(i) Limitation on use of deconsolidation to avoid foreign tax
credit limitations
If 2 or more domestic corporations would be members of the same
affiliated group if -
(1) section 1504(b) were applied without regard to the
exceptions contained therein, and
(2) the constructive ownership rules of section 1563(e) applied
for purposes of section 1504(a),
the Secretary may by regulations provide for resourcing the income
of any of such corporations or for modifications to the
consolidated return regulations to the extent that such resourcing
or modifications are necessary to prevent the avoidance of the
provisions of this subpart.
(j) Certain individuals exempt
(1) In general
In the case of an individual to whom this subsection applies
for any taxable year -
(A) the limitation of subsection (a) shall not apply,
(B) no taxes paid or accrued by the individual during such
taxable year may be deemed paid or accrued under subsection (c)
in any other taxable year, and
(C) no taxes paid or accrued by the individual during any
other taxable year may be deemed paid or accrued under
subsection (c) in such taxable year.
(2) Individuals to whom subsection applies
This subsection shall apply to an individual for any taxable
year if -
(A) the entire amount of such individual's gross income for
the taxable year from sources without the United States
consists of qualified passive income,
(B) the amount of the creditable foreign taxes paid or
accrued by the individual during the taxable year does not
exceed $300 ($600 in the case of a joint return), and
(C) such individual elects to have this subsection apply for
the taxable year.
(3) Definitions
For purposes of this subsection -
(A) Qualified passive income
The term "qualified passive income" means any item of gross
income if -
(i) such item of income is passive income (as defined in
subsection (d)(2)(A) without regard to clause (iii) thereof),
and
(ii) such item of income is shown on a payee statement
furnished to the individual.
(B) Creditable foreign taxes
The term "creditable foreign taxes" means any taxes for which
a credit is allowable under section 901; except that such term
shall not include any tax unless such tax is shown on a payee
statement furnished to such individual.
(C) Payee statement
The term "payee statement" has the meaning given to such term
by section 6724(d)(2).
(D) Estates and trusts not eligible
This subsection shall not apply to any estate or trust.
(k) Cross reference
(1) For increase of limitation under subsection (a) for taxes
paid with respect to amounts received which were included in
the gross income of the taxpayer for a prior taxable year as a
United States shareholder with respect to a controlled foreign
corporation, see section 960(b).
(2) For modification of limitation under subsection (a) for
purposes of determining the amount of credit which can be taken
against the alternative minimum tax, see section 59(a).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 287; Pub. L. 85-866, title I,
Sec. 42(a), Sept. 2, 1958, 72 Stat. 1639; Pub. L. 86-780, Sec. 1,
Sept. 14, 1960, 74 Stat. 1010; Pub. L. 87-834, Secs. 10(a),
12(b)(2), Oct. 16, 1962, 76 Stat. 1002, 1031; Pub. L. 88-272, title
II, Sec. 234(b)(6), Feb. 26, 1964, 78 Stat. 116; Pub. L. 89-809,
title I, Sec. 106(c)(1), Nov. 13, 1966, 80 Stat. 1570; Pub. L.
91-172, title V, Sec. 506(b), Dec. 30, 1969, 83 Stat. 635; Pub. L.
92-178, title V, Sec. 502(b)(2)-(4), Dec. 10, 1971, 85 Stat. 549;
Pub. L. 94-455, title V, Sec. 503(b)(1), title X, Secs. 1031(a),
1032(a), 1034(a), 1051(e), title XIX, Sec. 1901(b)(10)(B), Oct. 4,
1976, 90 Stat. 1562, 1620, 1624, 1629, 1646, 1795; Pub. L. 95-30,
title I, Sec. 102(b)(11), May 23, 1977, 91 Stat. 138; Pub. L.
95-600, title IV, Secs. 403(c)(4), 421(e)(6), title VII, Sec.
701(q)(2), (u)(2)(A)-(C), (3)(A), (4)(A), (B), (8)(C), Nov. 6,
1978, 92 Stat. 2868, 2876, 2910, 2913, 2916; Pub. L. 96-222, title
I, Sec. 104(a)(3)(D), Apr. 1, 1980, 94 Stat. 215; Pub. L. 97-248,
title II, Sec. 211(c)(2), Sept. 3, 1982, 96 Stat. 449; Pub. L.
98-21, title I, Sec. 122(c)(1), Apr. 20, 1983, 97 Stat. 87; Pub. L.
98-369, div. A, title I, Secs. 121(a), 122(a), title IV, Sec.
474(r)(21), title VIII, Sec. 801(d)(2), July 18, 1984, 98 Stat.
638, 643, 843, 995; Pub. L. 99-514, title I, Sec. 104(b)(13), title
VII, Sec. 701(e)(4)(H), title XII, Secs. 1201(a), (b), (d)(1)-(3),
1203(a), 1211(b)(3), 1235(f)(4), title XVIII, Secs. 1810(a)(1)(A),
(b)(1)-(4)(A), 1876(d)(2), 1899A(24), Oct. 22, 1986, 100 Stat.
2105, 2343, 2520, 2525, 2531, 2536, 2575, 2821, 2823, 2899, 2959;
Pub. L. 100-647, title I, Secs. 1003(b)(2), 1012(a)(1)(A), (2)-(4),
(6)-(11), (c), (p)(11), (29), (q)(12), (bb)(4)(A), title II, Sec.
2004(l), Nov. 10, 1988, 102 Stat. 3383, 3493-3497, 3517, 3521,
3525, 3534, 3606; Pub. L. 101-239, title VII, Secs. 7402(a),
7811(i)(1), Dec. 19, 1989, 103 Stat. 2357, 2409; Pub. L. 101-508,
title XI, Secs. 11101(d)(5), 11801(a)(31), Nov. 5, 1990, 104 Stat.
1388-405, 1388-521; Pub. L. 103-66, title XIII, Secs. 13227(d),
13235(a)(2), Aug. 10, 1993, 107 Stat. 494, 504; Pub. L. 104-188,
title I, Secs. 1501(b)(1), (12), 1703(i)(1), 1704(t)(36), Aug. 20,
1996, 110 Stat. 1825, 1826, 1876, 1889; Pub. L. 105-34, title III,
Sec. 311(c)(3), title XI, Secs. 1101(a), 1105(a), (b), 1111(b),
1163(b), Aug. 5, 1997, 111 Stat. 835, 963, 967, 969, 987; Pub. L.
106-170, title V, Sec. 501(b)(2), Dec. 17, 1999, 113 Stat. 1919;
Pub. L. 107-16, title II, Secs. 201(b)(2)(G), 202(f)(2)(C), title
VI, Sec. 618(b)(2)(D), June 7, 2001, 115 Stat. 46, 49, 108; Pub. L.
107-147, title IV, Sec. 417(23)(B), title VI, Sec. 601(b)(1), Mar.
9, 2002, 116 Stat. 57, 59.)
-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.
-REFTEXT-
REFERENCES IN TEXT
Sections 923 and 927, referred to in subsec. (d)(1)(G), (H), were
repealed by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (d)(2)(I), is the date of the enactment of Pub. L.
99-514, which was approved Oct. 22, 1986.
Section 172(h), referred to in subsec. (f)(2)(B)(i), was repealed
by Pub. L. 101-508, title XI, Sec. 11811(b)(1), Nov. 5, 1990, 104
Stat. 1388-532.
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsec. (f)(2)(B)(i), is the date of enactment
of Pub. L. 101-508, title XI, which was approved Nov. 5, 1990.
-MISC1-
AMENDMENTS
2002 - Subsec. (h). Pub. L. 107-147, Sec. 601(b)(1), substituted
"during 2000, 2001, 2002, or 2003" for "during 2000 or 2001".
Pub. L. 107-147, Sec. 417(23)(B), amended directory language of
Pub. L. 107-16, Sec. 618(b)(2)(D). See 2001 Amendment note below.
2001 - Subsec. (h). Pub. L. 107-16, Secs. 618(b)(2)(D), 901, as
amended by Pub. L. 107-147, Sec. 417(23)(B), temporarily
substituted ", 24, and 25B" for "and 24". See Effective and
Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 202(f)(2)(C), 901, temporarily substituted
"sections 23 and 24" for "section 24". See Effective and
Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Secs. 201(b)(2)(G), 901, inserted "(other than
section 24)" after "chapter". See Effective and Termination Dates
of 2001 Amendment note below.
1999 - Subsec. (h). Pub. L. 106-170 inserted at end "This
subsection shall not apply to taxable years beginning during 2000
or 2001."
1997 - Subsec. (b)(2)(C). Pub. L. 105-34, Sec. 311(c)(3), added
subpar. (C).
Subsec. (d)(1)(E). Pub. L. 105-34, Sec. 1105(a)(1), amended
subpar. (E) generally. Prior to amendment, subpar. (E) read as
follows: "in the case of a corporation, dividends from each
noncontrolled section 902 corporation,".
Subsec. (d)(2)(C)(i)(II). Pub. L. 105-34, Sec. 1163(b),
substituted "subclauses (I) and (III)" for "subclause (I)".
Subsec. (d)(2)(C)(iii)(II), (D). Pub. L. 105-34, Sec. 1105(a)(3),
inserted "out of earnings and profits accumulated in taxable years
beginning before January 1, 2003" after "corporation".
Subsec. (d)(2)(E)(i). Pub. L. 105-34, Sec. 1111(b), struck out
"and except as provided in regulations, the taxpayer was a United
States shareholder in such corporation" after "was a controlled
foreign corporation".
Subsec. (d)(2)(E)(iv). Pub. L. 105-34, Sec. 1105(a)(2), added cl.
(iv).
Subsec. (d)(4) to (6). Pub. L. 105-34, Sec. 1105(b), added par.
(4) and redesignated former pars. (4) and (5) as (5) and (6),
respectively.
Subsecs. (j), (k). Pub. L. 105-34, Sec. 1101(a), added subsec.
(j) and redesignated former subsec. (j) as (k).
1996 - Subsec. (d)(3)(G). Pub. L. 104-188, Sec. 1501(b)(1), (12),
amended subpar. (G) identically, substituting "section
951(a)(1)(B)" for "subparagraph (B) or (C) of section 951(a)(1)".
Pub. L. 104-188, Sec. 1703(i)(1), substituted "subparagraph (B)
or (C) of section 951(a)(1)" for "section 951(a)(1)(B)".
Subsec. (f)(2)(B)(i). Pub. L. 104-188, Sec. 1704(t)(36), inserted
"(as in effect on the day before the date of the enactment of the
Revenue Reconciliation Act of 1990)" after "section 172(h)".
1993 - Subsec. (b)(4). Pub. L. 103-66, Sec. 13227(d), inserted
before period at end "(without regard to subsections (a)(4) and (i)
thereof)".
Subsec. (d)(2)(A)(iii)(II) to (IV). Pub. L. 103-66, Sec.
13235(a)(2), inserted "and" at end of subcl. II, substituted
"income." for "income, and" in subcl. III, and struck out subcl.
(IV) which read as follows: "any foreign oil and gas extraction
income (as defined in section 907(c))."
1990 - Subsec. (b)(3)(D)(i). Pub. L. 101-508, Sec.
11101(d)(5)(A), substituted "subsection (h)" for "subsection (j)".
Subsec. (b)(3)(E)(iii)(I). Pub. L. 101-508, Sec. 11101(d)(5)(B),
substituted "section 1(h)" for "section 1(j)".
Subsec. (e). Pub. L. 101-508, Sec. 11801(a)(31), struck out
subsec. (e) which related to transitional rules for carrybacks and
carryovers for taxpayers on the per-country limitation.
1989 - Subsec. (d)(1)(H). Pub. L. 101-239, Sec. 7811(i)(1),
substituted "interest or carrying charges (as defined in section
927(d)(1)) derived from a transaction which results in foreign
trade income (as defined in section 923(b))" for "qualified
interest and carrying charges (as defined in section 245(c))".
Subsecs. (i), (j). Pub. L. 101-239, Sec. 7402(a), added subsec.
(i) and redesignated former subsec. (i) as (j).
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 1003(b)(2)(A),
amended par. (2) generally, substituting general provisions and
provisions setting special rules where there is a capital gain rate
differential for provisions for corporations and for other
taxpayers.
Subsec. (b)(3)(D). Pub. L. 100-647, Sec. 1003(b)(2)(B), added
subpar. (D) and struck out former subpar. (D), Rate differential
portion, which read as follows: "The 'rate differential portion' of
foreign source net capital gain, net capital gain, or the excess of
net capital gain from sources within the United States over net
capital gain, as the case may be, is the same proportion of such
amount as the excess of the highest rate of tax specified in
section 11(b) over the alternative rate of tax under section
1201(a) bears to the highest rate of tax specified in section
11(b)."
Subsec. (b)(3)(D)(ii). Pub. L. 100-647, Sec. 2004(l), substituted
"section 11(b)(1)" for "section 11(b)".
Subsec. (b)(3)(E). Pub. L. 100-647, Sec. 1003(b)(2)(B), added
subpar. (E).
Subsec. (d)(1)(E). Pub. L. 100-647, Sec. 1012(a)(11), inserted
"in the case of a corporation," before "dividends".
Subsec. (d)(2)(A)(ii). Pub. L. 100-647, Sec. 1012(a)(6)(A),
(p)(29)(A), substituted "Except as provided in clause (iii), the
term" for "The term" and "or, except as provided in subparagraph
(E)(iii) or paragraph (3)(I), section 1293" for "or section 1293".
Subsec. (d)(2)(A)(iv). Pub. L. 100-647, Sec. 1012(a)(6)(B), added
cl. (iv).
Subsec. (d)(2)(B)(iii). Pub. L. 100-647, Sec. 1012(a)(8), amended
cl. (iii) generally. Prior to amendment, cl. (iii) read as follows:
"The Secretary may by regulations provide that amounts (not
otherwise high withholding tax interest) shall be treated as high
withholding tax interest where necessary to prevent avoidance of
the purposes of this subparagraph."
Subsec. (d)(2(C). Pub. L. 100-647, Sec. 1012(a)(1)(A), amended
subpar. (C) generally, revising and restating as cls. (i) to (iii)
provisions of former cls. (i) to (iv).
Subsec. (d)(2)(D). Pub. L. 100-647, Sec. 1012(a)(2), provided for
exclusion from term "shipping income" any dividend from a
noncontrolled section 902 corporation and any financial services
income.
Subsec. (d)(2)(E)(i). Pub. L. 100-647, Sec. 1012(a)(10), inserted
"and except as provided in regulations, the taxpayer was a United
States shareholder in such corporation" before period at end.
Subsec. (d)(2)(E)(iii). Pub. L. 100-647, Sec. 1012(p)(29)(B),
added cl. (iii).
Subsec. (d)(2)(I)(ii). Pub. L. 100-647, Sec. 1012(a)(9),
substituted "except that - " for "except to the extent that - ",
added subcls. (I) to (III), and struck out former subcls. (I) and
(II) which read as follows:
"(I) the taxpayer establishes to the satisfaction of the
Secretary that such taxes were paid or accrued with respect to
shipping income, or
"(II) in the case of an entity meeting the requirements of
subparagraph (C)(ii), the taxpayer establishes to the satisfaction
of the Secretary that such taxes were paid or accrued with respect
to financial services income, and".
Subsec. (d)(3)(E). Pub. L. 100-647, Sec. 1012(a)(4), inserted
first sentence, struck out former first sentence which read "If a
controlled foreign corporation meets the requirements of section
954(b)(3)(A) (relating to de minimis rule) for any taxable year,
for purposes of this paragraph, none of its income for such taxable
year shall be treated as income in a separate category.", and in
second sentence substituted "passive income" for "income (other
than high withholding tax interest and dividends from a
noncontrolled section 902 corporation)".
Subsec. (d)(3)(F). Pub. L. 100-647, Sec. 1012(a)(7), amended
subpar. (F) generally. Prior to amendment, subpar. (F) read as
follows: "For purposes of this paragraph, the term 'separate
category' means any category of income described in subparagraph
(A), (B), (C), (D), or (E) of paragraph (1)."
Subsec. (d)(3)(H). Pub. L. 100-647, Sec. 1012(a)(3), added
subpar. (H).
Subsec. (d)(3)(I). Pub. L. 100-647, Sec. 1012(p)(11), added
subpar. (I).
Subsec. (f)(5)(F). Pub. L. 100-647, Sec. 1012(c), added subpar.
(F).
Subsec. (g)(9)(A). Pub. L. 100-647, Sec. 1012(q)(12), substituted
"861(a)(1)(A)" for "861(a)(1)(B)".
Subsec. (g)(10), (11). Pub. L. 100-647, Sec. 1012(bb)(4)(A),
added par. (10) and redesignated former par. (10) as (11).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 104(b)(13), struck out
last sentence "For purposes of the preceding sentence, in the case
of an individual the entire taxable income shall be reduced by an
amount equal to the zero bracket amount."
Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 1211(b)(3), redesignated
subpar. (E) as (C) and struck out former subpar. (C), exception for
gain from the sale of certain personal property, which read as
follows: "There shall be included as gain from sources within the
United States any gain from sources without the United States from
the sale or exchange of a capital asset which is personal property
which -
"(i) in the case of an individual, is sold or exchanged outside
of the country (or possession) of the individual's residence,
"(ii) in the case of a corporation, is stock in a second
corporation sold or exchanged other than in a country (or
possession) in which such second corporation derived more than 50
percent of its gross income for the 3-year period ending with the
close of such second corporation's taxable year immediately
preceding the year during which the sale or exchange occurred, or
"(iii) in the case of any taxpayer, is personal property (other
than stock in a corporation) sold or exchanged other than in a
country (or possession) in which such property is used in a trade
or business of the taxpayer or in which such taxpayer derived
more than 50 percent of its gross income for the 3-year period
ending with the close of its taxable year immediately preceding
the year during which the sale or exchange occurred,
unless such gain is subject to an income, war profits, or excess
profits tax of a foreign country or possession of the United
States, and the rate of tax applicable to such gain is 10 percent
or more of the gain from the sale or exchange (computed under this
chapter)."
Subsec. (b)(3)(D). Pub. L. 99-514, Sec. 1211(b)(3), redesignated
subpar. (F) as (D) and struck out former subpar. (D), gain from
liquidation of certain foreign corporations, which read as follows:
"Subparagraph (C) shall not apply with respect to a distribution in
liquidation of a foreign corporation to which part II of subchapter
C applies if such corporation derived less than 50 percent of its
gross income from sources within the United States for the 3-year
period ending with the close of such corporation's taxable year
immediately preceding the year during which the distribution
occurred."
Subsec. (b)(3)(E), (F). Pub. L. 99-514, Sec. 1211(b)(3),
redesignated former subpars. (E) and (F) as (C) and (D),
respectively.
Subsec. (d). Pub. L. 99-514, Sec. 1201(d)(1), substituted
"certain categories of income" for "certain interest income and
income from DISC, former DISC, FSC, or former FSC" in heading.
Subsec. (d)(1). Pub. L. 99-514, Sec. 1201(a), (d)(2), (3),
inserted "and sections 902, 907, and 960" in introductory
provisions, added subpars. (A) to (E), struck out former subpar.
(A) which read "the interest income described in paragraph (2)",
redesignated former subpars. (B), (C), (D), and (E) as (F), (G),
(H), and (I), respectively, and in subpar. (I), substituted "in any
of the preceding subparagraphs" for "in subparagraph (A), (B), (C),
or (D)".
Pub. L. 99-514, Sec. 1899A(24), made technical correction
clarifying heading. See 1984 Amendment note below.
Subsec. (d)(1)(D). Pub. L. 99-514, Sec. 1876(d)(2), amended
subpar. (D) generally. Prior to amendment, subpar. (D) read as
follows: "distributions from a FSC (or former FSC) out of earnings
and profits attributable to foreign trade income (within the
meaning of section 923(b)), and".
Subsec. (d)(2). Pub. L. 99-514, Sec. 1201(b), added par. (2) and
struck out former par. (2), interest income to which applicable,
which read as follows: "For purposes of this subsection, the
interest income described in this paragraph is interest other than
interest -
"(A) derived from any transaction which is directly related to
the active conduct by the taxpayer of a trade or business in a
foreign country or a possession of the United States,
"(B) derived in the conduct by the taxpayer of a banking,
financing, or similar business,
"(C) received from a corporation in which the taxpayer (or one
or more includible corporations in an affiliated group, as
defined in section 1504, of which the taxpayer is a member) owns,
directly or indirectly, at least 10 percent of the voting stock,
or
"(D) received on obligations acquired as a result of the
disposition of a trade or business actively conducted by the
taxpayer in a foreign country or possession of the United States
or as a result of the disposition of stock or obligations of a
corporation in which the taxpayer owned at least 10 percent of
the voting stock.
For purposes of subparagraph (C), stock owned, directly or
indirectly, by or for a foreign corporation, shall be considered as
being proportionately owned by its shareholders. For purposes of
this subsection, interest (after the operation of section
904(d)(3)) received from a designated payor corporation described
in section 904(d)(3)(E)(iii) by a taxpayer which owns directly or
indirectly less than 10 percent of the voting stock of such
designated payor corporation shall be treated as interest described
in subparagraph (A) to the extent such interest would have been so
treated had such taxpayer received it from other than a designated
payor corporation."
Pub. L. 99-514, Sec. 1810(b)(3), inserted at end "For purposes of
this subsection, interest (after the operation of section
904(d)(3)) received from a designated payor corporation described
in section 904(d)(3)(E)(iii) by a taxpayer which owns directly or
indirectly less than 10 percent of the voting stock of such
designated payor corporation shall be treated as interest described
in subparagraph (A) to the extent such interest would have been so
treated had such taxpayer received it from other than a designated
payor corporation."
Subsec. (d)(3). Pub. L. 99-514, Sec. 1201(b), added par. (3) and
struck out former par. (3) treating as interest certain amounts
attributable to United States-owned foreign corporations, etc.,
subpars. thereof relating to following subject matter: (A) general
provisions, (B) separate limitation interest, (C) exception where
designated corporation has small amount of separate limitation
interest, (D) treatment of certain interest, (E) designated payor
corporation, (F) determination of year to which amount is
attributable, (G) ordering rules, (H) dividend, (I) interest and
dividends from members of same affiliated group, and (J)
distributions through other entities.
Subsec. (d)(3)(C). Pub. L. 99-514, Sec. 1810(b)(1), inserted at
end "The preceding sentence shall not apply to any amount
includible in gross income under section 551 or 951."
Subsec. (d)(3)(E). Pub. L. 99-514, Sec. 1810(b)(4)(A), inserted
at end:
"(iv) any other corporation formed or availed of for purposes
of avoiding the provisions of this paragraph.
For purposes of this paragraph, the rules of paragraph (9) of
subsection (g) shall apply."
Subsec. (d)(3)(I). Pub. L. 99-514, Sec. 1810(b)(2), redesignated
subpar. (I) as (J) and added a new subpar. (I), interest and
dividends from members of same affiliated group, which read as
follows: "For purposes of this paragraph, dividends and interest
received or accrued by the designated payor corporation from
another member of the same affiliated group (determined under
section 1504 without regard to subsection (b)(3) thereof) shall be
treated as separate limitation interest if (and only if) such
amounts are attributable (directly or indirectly) to separate
limitation interest of any other member of such group."
Subsec. (d)(3)(J). Pub. L. 99-514, Sec. 1810(b)(2), redesignated
subpar. (I) as (J) and struck out former subpar. (J), interest from
members of same affiliated group, which read as follows: "For
purposes of this paragraph, interest received or accrued by the
designated payor corporation from another member of the same
affiliated group (determined under section 1504 without regard to
subsection (b)(3) thereof) shall not be treated as separate
limitation interest, unless such interest is attributable directly
or indirectly to separate limitation interest of such other
member."
Subsec. (d)(4), (5). Pub. L. 99-514, Sec. 1201(b), added pars.
(4) and (5).
Subsec. (f)(5). Pub. L. 99-514, Sec. 1203(a), added par. (5).
Subsec. (g)(1)(A)(iii). Pub. L. 99-514, Sec. 1235(f)(4)(A), added
cl. (iii).
Subsec. (g)(2). Pub. L. 99-514, Sec. 1235(f)(4)(B), substituted
"holding or passive foreign investment company" for "holding
company" in heading.
Subsec. (g)(9), (10). Pub. L. 99-514, Sec. 1810(a)(1)(A), added
par. (9) and redesignated former par. (9) as (10).
Subsec. (i)(2). Pub. L. 99-514, Sec. 701(e)(4)(H), struck out "by
an individual" after "can be taken" and substituted "section 59(a)"
for "section 55(c)".
1984 - Subsec. (d). Pub. L. 98-369, Sec. 801(d)(2)(C), which
directed amendment of par. (1) heading by substituting "Separate
application of section with respect to certain interest income and
income from DISC, former DISC, FSC, or former FSC" for "Application
of section in case of certain interest income and dividends from a
DISC or former DISC" was executed to subsec. (d) heading to reflect
the probable intent of Congress.
Subsec. (d)(1)(B) to (E). Pub. L. 98-369, Sec. 801(d)(2)(A), (B),
struck out "and" after "United States," at end of subpar. (B),
substituted "taxable income attributable to foreign trade income
(within the meaning of section 923(b))," for "income other than the
interest income described in paragraph (2) and dividends described
in subparagraph (B)," in subpar. (C), and added subpars. (D) and
(E).
Subsec. (d)(3). Pub. L. 98-369, Sec. 122(a), added par. (3).
Subsec. (g). Pub. L. 98-369, Sec. 121(a), added subsec. (g).
Former subsec. (g) redesignated (h).
Pub. L. 98-369, Sec. 474(r)(21), amended subsec. (g) generally,
substituting "Coordination with nonrefundable personal credits" for
"Coordination with credit for the elderly" in heading and in text
substituting "reduced by the sum of the credits allowable under
subpart A of part IV of subchapter A of this chapter" for "reduced
by the amount of the credit (if any) for the taxable year allowable
under section 37 (relating to credit for the elderly and the
permanently and totally disabled)".
Subsecs. (h), (i). Pub. L. 98-369, Sec. 121(a), redesignated
former subsecs. (g) and (h) as (h) and (i), respectively.
1983 - Subsec. (g). Pub. L. 98-21 substituted "relating to credit
for the elderly and the permanently and totally disabled" for
"relating to credit for the elderly".
1982 - Subsec. (f)(4) to (6). Pub. L. 97-248 struck out par. (4)
which provided for the determination of foreign oil related loss
where section 907 was applicable, redesignated par. (5) as (4), and
purported to redesignate par. (6) as (5). However, subsec. (f) did
not contain a par. (6).
1980 - Subsec. (b)(3)(F). Pub. L. 96-222, Sec. 104(a)(3)(D)(i),
redesignated subpar. (E) "Rate differential portion", added by Pub.
L. 95-600, as (F).
1978 - Subsec. (b)(2). Pub. L. 95-600, Secs. 403(c)(4)(A),
701(u)(2)(A), (3)(A), in subpar. (A) substituted "this section" for
"subsection (a)", "the rate differential portion" for "three
eighths" wherever appearing, and "for purposes of determining
taxable income from sources without the United States, any net
capital loss (and any amount which is a short term capital loss
under section 1212(a))" for "any net capital loss".
Subsec. (b)(3). Pub. L. 95-600, Secs. 403(c)(4)(B), 701(u)(2)(B),
(C), as amended by Pub. L. 96-222, Sec. 104(a)(3)(D)(ii),
substituted "There" for "For purposes of this paragraph, there",
added subpar. (D), redesignated former subpar. (D), relating to
section 1231 gains, as subpar. (E), and added another subpar. (E),
relating to rate differential portion. See 1980 Amendment note
above.
Subsec. (f)(2)(A). Pub. L. 95-600, Sec. 701(u)(4)(A), struck out
provision relating to capital loss carrybacks and carryovers.
Subsec. (f)(4). Pub. L. 95-600, Sec. 701(u)(4)(B), (8)(C),
substituted in introductory provisions "In making the separate
computation under this subsection with respect to foreign oil
related income which is required by section 907(b)" for "In the
case of a corporation to which section 907(b)(1) applies" and in
subpar. (A) struck out provision relating to capital loss
carrybacks and carryovers.
Subsec. (f)(5). Pub. L. 95-600, Sec. 701(q)(2), added par. (5).
Subsec. (h). Pub. L. 95-600, Sec. 421(e)(6), designated existing
provisions as par. (1) and added par. (2).
1977 - Subsec. (a). Pub. L. 95-30 provided that, for purposes of
determining the maximum total amount of the credit taken under
section 901(a), in the case of an individual, the entire taxable
income shall be reduced by an amount equal to the zero bracket
amount.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1031(a), struck out
provisions allowing the per-country limitation, made the overall
limitation applicable to all taxpayers to determine their foreign
tax credit limitation, and inserted reference to section 901(a).
Subsec. (b). Pub. L. 94-455, Secs. 1031(a), 1034(a), 1051(e),
redesignated subsec. (c) as (b)(1), inserted provisions that the
net United States capital losses would offset net foreign capital
gains and, in the case of corporations, that only 30/48 of the
net foreign source gain would be included in the foreign tax credit
limitation, and that the gain from the sale or exchange of personal
property outside the United States would be considered United
States source income unless one of three exceptions applied, and
added par. (4).
Subsec. (c). Pub. L. 94-455, Sec. 1031(a), redesignated subsec.
(d) as (c), and amended the redesignated subsec. (c) generally to
conform to the elimination of the per-country limitation in subsec.
(a). Former subsec. (c) redesignated (b)(1).
Subsec. (d). Pub. L. 94-455, Sec. 1031(a), redesignated subsec.
(f)(1), (2), as (d). Former subsec. (d) redesignated (c).
Subsec. (e). Pub. L. 94-455, Sec. 1031(a), added subsec. (e).
Former subsec. (e) was eliminated in view of the amendment of
subsec. (a).
Subsec. (f). Pub. L. 94-455, Secs. 1031(a), 1032(a),
1901(b)(10)(B), added subsec. (f), and substituted "section 172(h)"
for "section 172(k)(1)" in pars. (2)(B)(i) and (4)(B)(i). Former
subsec. (f)(1), (2), was redesignated (d). Former subsecs. (f)(3),
(4), (5) were omitted.
Subsec. (g). Pub. L. 94-455, Secs. 1032(a), 503(b)(1), added
subsec. (g). Former subsec. (f) redesignated (g), and further
redesignated (h).
Subsec. (h). Pub. L. 94-455, Sec. 503(b)(1), redesignated former
subsec. (g) as (h).
1971 - Subsec. (f). Pub. L. 92-178, Sec. 502(b)(2), inserted "and
dividends from a DISC or former DISC" after "interest income" in
the heading.
Subsec. (f)(1). Pub. L. 92-178, Sec. 502(b)(2), inserted "each of
the following items of income" in introductory text, added subpar.
(B), and redesignated former subpar. (B) as (C), inserting therein
provisions respecting dividends described in subparagraph (B).
Subsec. (f)(3). Pub. L. 92-178, Sec. 502(b)(3), provided that the
limitation provided by subsec. (a)(2) shall not apply to dividends
described in paragraph (1)(B) and substituted "limitation provided
by subsection (a)(2) applies with respect to income described in
paragraph (1)(B) and (C)" for "limitation provided by subsection
(a)(2) applies with respect to income other than the interest
income described in paragraph (2)".
Subsec. (f)(5). Pub. L. 92-178, Sec. 502(b)(4), added par. (5).
1969 - Subsec. (b)(1). Pub. L. 91-172, Sec. 506(b)(1),
substituted "(A) with the consent of the Secretary or his delegate
with respect to any taxable year or (B) for the taxpayer's first
taxable year beginning after December 31, 1969" for "with the
consent of the Secretary or his delegate with respect to any
taxable year".
Subsec. (b)(2). Pub. L. 91-172, Sec. 506(b)(2), substituted
"Except in a case to which paragraph (1)(B) applies, if the
taxpayer" for "If a taxpayer".
1966 - Subsec. (f)(2). Pub. L. 89-809 inserted reference to
includible corporations in an affiliated group, as defined in
section 1504, of which the taxpayer is a member and inserted
reference to both direct and indirect ownership in subpar. (C) and
inserted provision that, for purposes of subpar. (C), stock owned
directly or indirectly by or for a foreign corporation shall be
considered as being proportionately owned by its shareholders.
1964 - Subsec. (g)(2). Pub. L. 88-272 substituted "section
1503(b)" for "section 1503(d)".
1962 - Subsec. (f). Pub. L. 87-834, Sec. 10(a), added subsec.
(f). Former subsec. (f) redesignated (g).
Subsec. (g). Pub. L. 87-834, Secs. 10(a), 12(b)(2), redesignated
former subsec. (f) as (g), designated existing provisions as par.
(2), and added par. (1).
1960 - Subsec. (a). Pub. L. 86-780, Sec. 1(a), designated
existing provisions as par. (1), inserted introductory clause "In
the case of any taxpayer who elects the limitation provided by this
paragraph" and inserted "foreign", "or possession of the United
States" and "or possession" therein and added par. (2).
Subsec. (b). Pub. L. 86-780, Sec. 1(a), added subsec. (b). Former
subsec. (b) redesignated (c).
Subsec. (c). Pub. L. 86-780, Sec. 1(b), redesignated former
subsec. (b) as (c) and inserted "applicable" before "limitation"
therein. Former subsec. (c) redesignated (d).
Subsec. (d). Pub. L. 86-780, Sec. 1(c), redesignated former
subsec. (c) as (d) and inserted "applicable" before "limitation" in
two places.
Subsecs. (e), (f). Pub. L. 86-780, Sec. 1(d), added subsecs. (e)
and (f).
1958 - Subsec. (c). Pub. L. 85-866 added subsec. (c).
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by section 601(b)(1) of Pub. L. 107-147 applicable to
taxable years beginning after Dec. 31, 2001, see section 601(c) of
Pub. L. 107-147, set out as a note under section 26 of this title.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by sections 201(b), 202(f), and 618(b) of Pub. L.
107-16 inapplicable to taxable years beginning during 2002 and
2003, see section 601(b)(2) of Pub. L. 107-147, set out as a note
under section 23 of this title.
Amendment by section 201(b)(2)(G) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 201(e)(2)
of Pub. L. 107-16, set out as a note under section 24 of this
title.
Amendment by section 202(f)(2)(C) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 202(g)(1)
of Pub. L. 107-16, set out as a note under section 23 of this
title.
Amendment by section 618(b)(2)(D) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 618(d) of
Pub. L. 107-16, set out as a note under section 24 of this title.
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 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to taxable years
beginning after Dec. 31, 1998, see section 501(c) of Pub. L.
106-170, set out as a note under section 24 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 311(c)(3) of Pub. L. 105-34 applicable to
taxable years ending after May 6, 1997, see section 311(d) of Pub.
L. 105-34, set out as a note under section 1 of this title.
Section 1101(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1997."
Section 1105(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 2002."
Section 1111(c)(2) of Pub. L. 105-34 provided that: "The
amendment made by subsection (b) [amending this section] shall
apply to distributions after the date of the enactment of this Act
[Aug. 5, 1997]."
Amendment by section 1163(b) of Pub. L. 105-34 effective Aug. 5,
1997, see section 1163(c) of Pub. L. 105-34, set out as a note
under section 902 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1501(d) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section and sections 951, 956,
959, 989, and 1297 of this title and repealing section 956A of this
title] shall apply to taxable years of foreign corporations
beginning after December 31, 1996, and to taxable years of United
States shareholders within which or with which such taxable years
of foreign corporations end."
Amendment by section 1703(i)(1) of Pub. L. 104-188 effective as
if included in the provision of the Revenue Reconciliation Act of
1993, Pub. L. 103-66, Secs. 13001-13444, to which such amendment
relates, see section 1703(o) of Pub. L. 104-188, set out as a note
under section 39 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13227(d) of Pub. L. 103-66 applicable to
taxable years beginning after Dec. 31, 1993, see section 13227(f)
of Pub. L. 103-66 set out as a note under section 56 of this title.
Section 13235(c) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and sections 907 and
954 of this title] shall apply to taxable years beginning after
December 31, 1992."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11101(d)(5) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11101(e)
of Pub. L. 101-508, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7402(b) of Pub. L. 101-239 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after July 10, 1989."
Amendment by section 7811(i)(1) 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
Section 1012(bb)(4)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
take effect as if included in the amendment made by section 121 of
the Tax Reform Act of 1984 [Pub. L. 98-369]."
Amendment by sections 1003(b)(2) and 1012(a)(1)(A), (2)-(4),
(6)-(11), (c), (p)(11), (29), (q)(12) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 2004(l) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provisions of the
Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(13) 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 701(e)(4)(H) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
Section 1201(e) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(a)(5), Nov. 10, 1988, 102 Stat. 3495; Pub. L.
101-239, title VII, Sec. 7404(a), Dec. 19, 1989, 103 Stat. 2361,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section and sections
864 and 954 of this title] shall apply to taxable years beginning
after December 31, 1986.
"[(2) Repealed. Pub. L. 101-239, title VII, Sec. 7404(a), Dec.
19, 1989, 103 Stat. 2361.]
"(3) Special rule for taxpayer with overall foreign loss. -
"(A) In general. - If a taxpayer incorporated on June 20, 1928,
the principal headquarters of which is in Minneapolis, Minnesota,
sustained an overall foreign loss (as defined in section
904(f)(2) of the Internal Revenue Code of 1954 [now 1986]) in
taxable years beginning before January 1, 1986, in connection
with 2 separate trades or businesses which the taxpayer had,
during 1985, substantially disposed of in tax-free transactions
pursuant to section 355 of such Code, then an amount, not to
exceed $40,000,000 of foreign source income, which, but for this
paragraph, would not be treated as overall limitation income,
shall be so treated.
"(B) Substantial disposition. - For purposes of this paragraph,
a taxpayer shall be treated as having substantially disposed of a
trade or business if the retained portion of such business had
sales of less than 10 percent of the annual sales of such
business for taxable years ending in 1985."
[Section 7404(b), (c) of Pub. L. 101-239 provided that:
["(b) Effective Date. - The repeal made by subsection (a)
[amending section 1201(e) of Pub. L. 99-514, set out above] shall
apply to taxable years beginning after December 31, 1989.
["(c) Exception for Certain Taxpayers With Substantial Loan Loss
Reserves. -
["(1) In general. - The repeal made by subsection (a) shall not
apply to any taxpayer if, on any financial statement filed by
such taxpayer for regulatory purposes with respect to any quarter
ending during the period beginning on March 31, 1989, and ending
on December 31, 1989, such taxpayer showed loss reserves against
its qualified loans equal to at least 25 percent of the amount of
such loans.
["(2) Definitions and special rules. - For purposes of this
subsection -
["(A) Qualified loan. - The term 'qualified loan' has the
meaning given such term by section 1201(e)(2)(H) of the Tax
Reform Act of 1986 [Pub. L. 99-514, formerly set out above] (as
in effect before its repeal by subsection (a)).
["(B) Parent-subsidiary controlled groups. - In the case of
any taxpayer which is a member of a parent-subsidiary
controlled group (as defined in section 585(c)(5)(A) [26 U.S.C.
585(c)(5)(A)]), this subsection shall be applied by treating
all members of such group as 1 taxpayer."]
Section 1203(b) of Pub. L. 99-514 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
losses incurred in taxable years beginning after December 31,
1986."
Amendment by section 1211(b)(3) 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 1235(f)(4) of Pub. L. 99-514 applicable to
taxable years of foreign corporations beginning after Dec. 31,
1986, see section 1235(h) of Pub. L. 99-514, set out as an
Effective Date note under section 1291 of this title.
Section 1810(a)(1)(B) of Pub. L. 99-514 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
take effect on March 28, 1985. In the case of any taxable year
ending after such date of any corporation treated as a United
States-owned foreign corporation by reason of the amendment made by
subparagraph (A) -
"(i) only income received or accrued by such corporation after
such date shall be taken into account under section 904(g) of the
Internal Revenue Code of 1954 [now 1986]; except that
"(ii) paragraph (5) of such section 904(g) shall be applied by
taking into account all income received or accrued by such
corporation during such taxable year."
Section 1810(b)(4)(B) of Pub. L. 99-514 provided that:
"(i) The amendment made by subparagraph (A) [amending this
section] insofar as it adds the last sentence to subparagraph (E)
of section 905(d)(3) [904(d)(3)] shall take effect on March 28,
1985. In the case of any taxable year ending after such date of any
corporation treated as a designated payor corporation by reason of
the amendment made by subparagraph (A) -
"(I) only income received or accrued by such corporation after
such date shall be taken into account under section 904(d)(3) of
the Internal Revenue Code of 1954 [now 1986]; except that
"(II) subparagraph (C) of such section 904(d)(3) shall be
applied by taking into account all income received or accrued by
such corporation during such taxable year.
"(ii) The amendment made by subparagraph (A) insofar as it adds
clause (iv) to subparagraph (E) of section 904(d)(3) shall take
effect on December 31, 1985. For purposes of such amendment, the
rule of the second sentence of clause (i) shall be applied by
taking into account December 31, 1985, in lieu of March 28, 1985."
Amendment by sections 1810(b)(1)-(3) and 1876(d)(2) of Pub. L.
99-514 effective, except as otherwise provided, as if included in
the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div.
A, to which such amendment relates, see section 1881 of Pub. L.
99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 121(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1810(a)(2), (3), Oct. 22, 1986, 100 Stat.
2095, 2822, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendment made by subsection (a) [amending this
section] shall take effect on the date of the enactment of this Act
[July 18, 1984]. In the case of any taxable year of any United
States-owned foreign corporation ending after the date of the
enactment of this Act -
"(A) only income received or accrued by such foreign
corporation after such date of enactment shall be taken into
account under section 904(g) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as added by subsection (a)); except that
"(B) paragraph (5) of such section 904(g) (relating to
exception where small amount of United States source income)
shall be applied by taking into account all income received or
accrued by such foreign corporation during such taxable year.
"(2) Special rule for applicable cfc. -
"(A) In general. - In the case of qualified interest received
or accrued by an applicable CFC before January 1, 1992 -
"(i) such interest shall not be taken into account under
section 904(g) of the Internal Revenue Code of 1986 (as added
by subsection (a)), except that
"(ii) such interest shall be taken into account for purposes
of applying paragraph (5) of such section 904(g) (relating to
exception where small amount of United States source income).
"(B) Qualified interest. - For purposes of subparagraph (A),
the term 'qualified interest' means -
"(i) the aggregate amount of interest received or accrued
during any taxable year by an applicable CFC on United States
affiliate obligations held by such applicable CFC, multiplied
by,
"(ii) a fraction (not in excess of 1) -
"(I) the numerator of which is the sum of the aggregate
principal amount of United States affiliate obligations held
by the applicable CFC on March 31, 1984, but not in excess of
the applicable limit, and
"(II) the denominator of which is the average daily
principal amount of United States affiliate obligations held
by such applicable CFC during the taxable year.
Proper adjustments shall be made to the numerator described in
clause (ii)(I) for original issue discount accruing after March
31, 1984, on CFC obligations and United States affiliate
obligations.
"(C) Adjustment for retirement of cfc obligations. - The amount
described in subparagraph (B)(ii)(I) for any taxable year shall
be reduced by the sum of -
"(i) the excess of (I) the aggregate principal amount of CFC
obligations which are outstanding on March 31, 1984, but only
with respect to obligations issued before March 8, 1984, or
issued after March 7, 1984, by the applicable CFC pursuant to a
binding commitment in effect on March 7, 1984, over (II) the
average daily outstanding principal amount during the taxable
year of the CFC obligations described in subclause (I), and
"(ii) the portion of the equity of such applicable CFC
allocable to the excess described in clause (i) (determined on
the basis of the debt-equity ratio of such applicable CFC on
March 31, 1984).
"(D) Applicable cfc. - For purposes of this paragraph, the term
'applicable CFC' means any controlled foreign corporation (within
the meaning of section 957) -
"(i) which was in existence on March 31, 1984, and
"(ii) the principal purpose of which on such date consisted
of the issuing of CFC obligations (or short-term borrowing from
nonaffiliated persons) and lending the proceeds of such
obligations (or such borrowing) to affiliates.
"(E) Affiliates; united states affiliates. - For purposes of
this paragraph -
"(i) Affiliate. - The term 'affiliate' means any person who
is a related person (within the meaning of section 482 of the
Internal Revenue Code of 1986) to the applicable CFC.
"(ii) United states affiliate. - The term 'United States
affiliate' means any United States person which is an affiliate
of the applicable CFC.
"(iii) Treatment of certain foreign corporations engaged in
business in united states. - For purposes of clause (ii), a
foreign corporation shall be treated as a United States person
with respect to any interest payment made by such corporation
if -
"(I) at least 50 percent of the gross income from all
sources of such corporation for the 3-year period ending with
the close of its last taxable year ending on or before March
31, 1984, was effectively connected with the conduct of a
trade or business within the United States, and
"(II) at least 50 percent of the gross income from all
sources of such corporation for the 3-year period ending with
the close of its taxable year preceding the payment of such
interest was effectively connected with the conduct of a
trade or business within the United States.
"(F) United states affiliate obligations. - For purposes of
this paragraph, the term 'United States affiliate obligations'
means any obligation of (and payable by) a United States
affiliate.
"(G) CFC obligation. - For purposes of this paragraph, the term
'CFC obligation' means any obligation of (and issued by) a CFC if
-
"(i) the requirements of clause (i) of section 163(f)(2)(B)
of the Internal Revenue Code of 1986 are met with respect to
such obligation, and
"(ii) in the case of an obligation issued after December 31,
1982, the requirements of clause (ii) of such section
163(f)(2)(B) are met with respect to such obligation.
"(H) Treatment of obligations with original issue discount. -
For purposes of this paragraph, in the case of any obligation
with original issue discount, the principal amount of such
obligation as of any day shall be treated as equal to the revised
issue price as of such day (as defined in section 1278(a)(4) of
the Internal Revenue Code of 1986).
"(I) Applicable limit. - For purposes of subparagraph
(B)(ii)(I), the term 'applicable limit' means the sum of -
"(i) the equity of the applicable CFC on March 31, 1984, and
"(ii) the aggregate principal amount of CFC obligations
outstanding on March 31, 1984, which were issued by an
applicable CFC -
"(I) before March 8, 1984, or
"(II) after March 7, 1984, pursuant to a binding commitment
in effect on March 7, 1984.
"(3) Exception for certain term obligations. - The amendments
made by subsection (a) shall not apply to interest on any term
obligations held by a foreign corporation on March 7, 1984. The
preceding sentence shall not apply to any United States affiliate
obligation (as defined in paragraph (2)(F)) held by an applicable
CFC (as defined in paragraph (2)(D)).
"(4) Definitions. - Any term used in this subsection which is
also used in section 904(g) of the Internal Revenue Code of 1986
(as added by subsection (a)) shall have the meaning given such term
by such section 904(g).
"(5) Separate application of section 904 in case of income
covered by transitional rules. - Subsections (a), (b), and (c) of
section 904 of the Internal Revenue Code of 1986 shall be applied
separately to any amount not treated as income derived from sources
within the United States but which (but for the provisions of
paragraph (2) or (3) of this subsection) would be so treated under
the amendments made by subsection (a). Any such separate
application shall be made before any separate application required
under section 904(d) of such Code.
"(6) Application of paragraph (5) delayed in certain cases. - In
the case of a foreign corporation -
"(A) which is a subsidiary of a domestic corporation which has
been engaged in manufacturing for more than 50 years, and
"(B) which issued certificates with respect to obligations on -
"(i) September 24, 1979, denominated in French francs,
"(ii) September 10, 1981, denominated in Swiss francs,
"(iii) July 14, 1982, denominated in Swiss francs, and
"(iv) December 1, 1982, denominated in United States dollars,
with a total principal amount of less than 200,000,000 United
States dollars.[,]
then paragraph (5) shall not apply to the proceeds from relending
such obligations or related capital before January 1, 1986."
Section 122(b) of Pub. L. 98-369 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall take effect on the date of the enactment of
this Act [July 18, 1984].
"(2) Special rules for interest income. -
"(A) In general. - Interest income received or accrued by a
designated payor corporation shall be taken into account for
purposes of the amendment made by subsection (a) only in taxable
years beginning after the date of the enactment of this Act.
"(B) Exception for investment after june 22, 1984. -
Notwithstanding subparagraph (A), the amendment made by
subsection (a) shall apply to interest income received or accrued
by a designated payor corporation after the date of enactment of
this Act if it is attributable to investment in the designated
payor corporation after June 22, 1984.
"(3) Term obligations of designated payor corporation which is
not applicable cfc. - In the case of any designated payor
corporation which is not an applicable CFC (as defined in section
121(b)(2)(D) [section 121(b)(2)(D) of Pub. L. 98-369, set out
above]), any interest received or accrued by such corporation on a
term obligation held by such corporation on March 7, 1984, shall
not be taken into account."
Amendment by section 474(r)(21) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 801(d)(2) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 98-21 applicable to taxable years beginning
after Dec. 31, 1983, except that if an individual's annuity
starting date was deferred under section 105(d)(6) of this title as
in effect on the day before Apr. 20, 1983, such deferral shall end
on the first day of such individual's first taxable year beginning
after Dec. 31, 1983, see section 122(d) of Pub. L. 98-21, set out
as a note under section 22 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, except that former subsec. (f)(4), which had
provided for the determination of foreign oil related loss where
section 907 of this title was applicable, shall continue to apply
in certain instances where the taxpayer has had a foreign loss from
an activity not related to oil and gas, see section 211(e) of Pub.
L. 97-248, set out as a note under section 907 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 403(c)(4) of Pub. L. 95-600 effective on
Nov. 6, 1978, see section 403(d)(3) of Pub. L. 95-600, set out as a
note under section 528 of this title.
Amendment by section 421(e)(6) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 421(g) of
Pub. L. 95-600, set out as note under section 5 of this title.
Amendment by section 701(a)(8)(C) of Pub. L. 95-600 applicable,
in the case of individuals, to taxable years ending after Dec. 31,
1974, and, in the case of corporations, to taxable years ending
after Dec. 31, 1976, see section 701(u)(8)(D) of Pub. L. 95-600,
set out as a note under section 907 of this title.
Section 701(q)(3)(B) of Pub. L. 95-600, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by paragraph (2) [amending this section] shall take
effect as if included in section 904(f) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954], as such provision was added to
such Code by section 1032(a) of the Tax Reform Act of 1976 [section
1032(a) of Pub. L. 94-455]."
Section 701(u)(2)(D) of Pub. L. 95-600 provided that: "The
amendments made by this paragraph [amending this section] shall
apply to taxable years beginning after December 31, 1975."
Section 701(u)(3)(B) of Pub. L. 95-600 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to taxable years beginning after December 31, 1975."
Section 701(u)(4)(C) of Pub. L. 95-600 provided that: "The
amendments made by this paragraph [amending this section] shall
apply -
"(i) to overall foreign losses sustained in taxable years
beginning after December 31, 1975, and
"(ii) to foreign oil related losses sustained in taxable years
ending after December 31, 1975."
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 503(b)(1) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 508 of
Pub. L. 94-455, set out as a note under section 3 of this title.
Section 1031(c) of Pub. L. 94-455, as amended by Pub. L. 95-600,
title VII, Sec. 701(u)(6), (7)(B)(ii), Nov. 6, 1978, 92 Stat. 2914,
2916; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that:
"(1) In general. - Except as provided in paragraphs (2) and (3),
the amendments made by this section [amending this section and
sections 243, 383, 901, 907, 960, 1351, 1503, 6038, and 6501 of
this title] shall apply to taxable years beginning after December
31, 1975.
"(2) Exception for certain mining operations. - In the case of a
domestic corporation or includible corporation in an affiliated
group (as defined in section 1504 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]) which has as of October 1, 1975 -
"(A) been engaged in the active conduct of the trade or
business of the extraction of minerals (of a character with
respect to which a deduction for depletion is allowable under
section 613 of such Code) outside the United States or its
possessions for less than 5 years preceding the date of enactment
of this Act [Oct. 4, 1976],
"(B) had deductions properly apportioned or allocated to its
gross income from such trade or business in excess of such gross
income in at least 2 taxable years,
"(C) 80 percent of its gross receipts are from the sale of such
minerals, and
"(D) made commitments for substantial expansion of such mineral
extraction activities,
the amendments made by this section [amending this section and
sections 243, 383, 901, 907, 960, 1351, 1503, 6038, and 6501 of
this title] shall apply to taxable years beginning after December
31, 1978. In the case of a loss sustained in a taxable year
beginning before January 1, 1979, by any corporation to which this
paragraph applies, if section 904(a)(1) of such Code (as in effect
before the enactment of this Act [Oct. 4, 1976]) applies with
respect to such taxable year, the provisions of section 904(f) of
such Code shall be applied with respect to such loss under the
principles of such section 904(a)(1).
"(3) Exception for income from possessions. - In the case of
gross income from sources within a possession of the United States
(and the deductions properly apportioned or allocated thereto), the
amendments made by this section [amending this section and sections
243, 383, 901, 907, 960, 1351, 1503, 6038, and 6501 of this title]
shall apply to taxable years beginning after December 31, 1978.
"(4) Carrybacks and carryovers in the case of mining operations
and income from a possession. - In the case of a taxpayer to whom
paragraph (2) or (3) of this subsection applies, section 904(e) of
such Code [section 904(e) of this title] shall apply except that
'January 1, 1979' shall be substituted for 'January 1, 1976' each
place it appears therein. If such a taxpayer elects the overall
limitation for a taxable year beginning before January 1, 1979,
such section 904(e) shall be applied by substituting 'the January
1, of the last year for which such taxpayer is on the per-country
limitation' for 'January 1, 1976' each place it appears therein."
Section 1032(c) of Pub. L. 94-455, as amended by Pub. L. 95-600,
title VII, Sec. 701(u)(5), (7)(A), (B)(i), Nov. 6, 1978, 92 Stat.
2914; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that:
"(1) In general. - Except as provided in paragraphs (2), (3), and
(5), the amendment made by subsection (a) [amending this section]
shall apply to losses sustained in taxable years beginning after
December 31, 1975. The amendment made by subsection (b)(1)
[amending section 907 of this title] shall apply to taxable years
beginning after December 31, 1975. The amendment made by subsection
(b)(2) [amending section 907 of this title] shall apply to losses
sustained in taxable years ending after December 31, 1975.
"(2) Obligations of foreign governments. - The amendments made by
subsection (a) [amending this section] shall not apply to losses on
the sale, exchange, or other disposition of bonds, notes, or other
evidences of indebtedness issued before May 14, 1976, by a foreign
government or instrumentality thereof for the acquisition of
property located in that country or stock of a corporation (created
or organized in or under the laws of that foreign country) or
indebtedness of such corporation.
"(3) Substantial worthlessness before enactment. - The amendments
made by subsection (a) [amending this section] shall not apply to
losses incurred on the loss from stock or indebtedness of a
corporation in which the taxpayer owned at least 10 percent of the
voting stock and which has sustained losses in 3 out of the last 5
taxable years beginning before January 1, 1976, which has sustained
an overall loss for those 5 years, and with respect to which the
taxpayer has terminated or will terminate all operations by reason
of sale, liquidation, or other disposition before January 1, 1977,
of such corporation or its assets.
"(4) Limitation based on deficit in earnings and profits. - If
paragraph (3) would apply to a taxpayer but for the fact that the
loss is sustained after December 31, 1976, and if the loss is
sustained in a taxable year beginning before January 1, 1979, the
amendments made by subsection (a) [amending this section] shall not
apply to such loss to the extent that there was on December 31,
1975, a deficit in earnings and profits in the corporation from
which the loss arose. For purposes of the preceding sentence, there
shall be taken into account only earnings and profits of the
corporation which (A) were accumulated in taxable years of the
corporation beginning after December 31, 1962, and during the
period in which the stock of such corporation from which the loss
arose was held by the taxpayer and (B) are attributable to such
stock.
"(5) Foreign oil related losses. - The amendment made by
subsection (a) [amending this section] shall apply to foreign oil
related losses sustained in taxable years ending after December 31,
1975.
"(6) Recapture of possession losses during transitional period
where taxpayer is on a per-country basis. -
"(A) Application of paragraph. - This paragraph shall apply if
-
"(i) the taxpayer sustained a loss in a possession of the
United States in a taxable year beginning after December 31,
1975, and before January 1, 1979,
"(ii) such loss is attributable to a trade or business
engaged in by the taxpayer in such possession on January 1,
1976, and
"(iii) the taxpayer chooses to have the benefits of subpart A
of part III of subchapter N apply for such taxable year and
section 904(a)(1) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as in effect before the enactment of
this Act [Oct. 4, 1976]) applies with respect to such taxable
year.
"(B) No recapture during transition period. - In any case to
which this paragraph applies, for purposes of determining the
liability for tax of the taxpayer for taxable years beginning
before January 1, 1979, section 904(f) of the Internal Revenue
Code of 1986 shall not apply with respect to the loss described
in subparagraph (A)(i).
"(C) Recapture of loss after the transition period. - In any
case to which this paragraph applies -
"(i) for purposes of determining the liability for tax of the
taxpayer for taxable years beginning after December 31, 1978,
section 904(f) of the Internal Revenue Code of 1986 [subsec.
(f) of this section] shall be applied with respect to the loss
described in subparagraph (A)(i) under the principles of
section 904(a)(1) of such Code (as in effect before the
enactment of this Act [Oct. 4, 1976]); but
"(ii) in the case of any taxpayer and any possession, the
aggregate amount to which such section 904(f) applies by reason
of clause (i) shall not exceed the sum of the net incomes of
all affiliated corporations from such possession for taxable
years of such affiliated corporations beginning after December
31, 1975, and before January 1, 1979.
"(D) Taxpayers not engaged in trade or business on january 1,
1976. - In any case to which this paragraph applies but for the
fact that the taxpayer was not engaged in a trade or business in
such possession on January 1, 1976, for purposes of determining
the liability for tax of the taxpayer for taxable years beginning
before January 1, 1979; if section 904(a)(1) of such Code (as in
effect before the enactment of this Act [Oct. 4, 1976]) applies
with respect to such taxable year, the provisions of section
904(f) of such Code shall be applied with respect to the loss
described in subparagraph (A)(i) under the principles of such
section 904(a)(1).
"(E) Affiliated corporation defined. - For purposes of
subparagraph (C)(ii), the term 'affiliated corporation' means a
corporation which, for the taxable year for which the net income
is being determined, was not a member of the same affiliated
group (within the meaning of section 1504 of the Internal Revenue
Code of 1986) as the taxpayer but would have been a member of
such group but for the application of subsection (b) of such
section 1504."
Section 1034(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1975, except that the provisions
of section 904(b)(3)(C) shall only apply to sales or exchanges made
after November 12, 1975."
Amendment by section 1051(e) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, with certain
exceptions, see section 1051(i) of Pub. L. 94-455, set out as a
note under section 27 of this title.
Amendment by section 1901(b)(10) of Pub. L. 94-455 applicable
with respect to taxable years ending after Oct. 4, 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 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 a note under section 991
of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to taxable
years beginning after Dec. 31, 1969, see section 506(c) of Pub. L.
91-172, set out as a note under section 901 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 106(c)(2) of Pub. L. 89-809 provided that: "The
amendments made by paragraph (1) [amending this section] shall
apply to interest received after December 31, 1965, in taxable
years ending after such date."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 234(c) of Pub. L. 88-272, set out
as a note under section 1503 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Section 10(b) of Pub. L. 87-834 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to taxable years beginning after the date of the enactment
of this Act [Oct. 16, 1962], but only with respect to interest
resulting from transactions consummated after April 2, 1962."
EFFECTIVE DATE OF 1960 AMENDMENT
Section 4 of Pub. L. 86-780 provided that: "The amendments made
by the first section [amending this section], section 2 [amending
section 1503 of this title], and subsection (a) of section 3 of
this Act [amending section 901 of this title] shall apply with
respect to taxable years beginning after December 31, 1960. The
amendment made by subsection (b) of section 3 of this Act [amending
section 901 of this title] shall apply with respect to taxable
years beginning after December 31, 1953, and ending after August
16, 1954. The amendments made by subsection (c) of section 3 of
this Act [enacting section 6501 of this title] shall apply with
respect to taxable years beginning after December 31, 1957."
EFFECTIVE DATE OF 1958 AMENDMENT
Section 42(c) of Pub. L. 85-866 provided that: "The amendments
made by subsections (a) and (b) [amending this section and section
6611 of this title] shall apply only with respect to taxable years
beginning after December 31, 1957."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11801(a)(31)
of Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 29 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendments by sections 701(e)(4)(H) and
1201(a), (b), (d)(1)-(3) of Pub. L. 99-514 notwithstanding any
treaty obligation of the United States in effect on Oct. 22, 1986,
and for nonapplication of amendment by section 1211(b)(3) 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)(2)-(4) of Pub. L. 100-647, set out as a note
under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
LIMITATION ON CARRYBACK OF FOREIGN TAX CREDITS TO TAXABLE YEARS
BEGINNING BEFORE 1987
Section 1205 of Pub. L. 99-514 provided that:
"(a) Determination of Excess Credits. -
"(1) In general. - Any taxes paid or accrued in a taxable year
beginning after 1986 may be treated under section 904(c) of the
Internal Revenue Code of 1954 as paid or accrued in a taxable
year beginning before 1987 only to the extent such taxes would be
so treated if the tax imposed by chapter 1 of such Code for the
taxable year beginning after 1986 were determined by applying
section 1 or 11 of such Code (as the case may be) as in effect on
the day before the date of the enactment of this Act [Oct. 22,
1986].
"(2) Adjustments. - Under regulations prescribed by the
Secretary of the Treasury or his delegate proper adjustments
shall be made in the application of paragraph (1) to take into
account -
"(A) the repeal of the zero bracket amount, and
"(B) the changes in the treatment of capital gains.
"(b) Coordination With Separate Baskets. - Any taxes paid or
accrued in a taxable year beginning after 1986 which (after the
application of subsection (a)) are treated as paid or accrued in a
taxable year beginning before 1987 shall be treated as imposed on
income described in section 904(d)(1)(E) of the Internal Revenue
Code of 1954 (as in effect on the day before the date of the
enactment of this Act [Oct. 22, 1986]). No taxes paid or accrued in
a taxable year beginning after 1986 with respect to high
withholding tax interest (as defined in section 904(d)(2)(B) of the
Internal Revenue Code of 1986 as amended by this Act) may be
treated as paid or accrued in a taxable year beginning before
1987."
COORDINATION WITH TREATY OBLIGATIONS
Section 1810(a)(4) of Pub. L. 99-514 provided that: "Section
904(g) of the Internal Revenue Code of 1954 shall apply
notwithstanding any treaty obligation of the United States to the
contrary (whether entered into on, before, or after the date of the
enactment of this Act [Oct. 22, 1986]) unless (in the case of a
treaty entered into after the date of the enactment of this Act)
such treaty by specific reference to such section 904(g) clearly
expresses the intent to override the provisions of such section."
SEPARATE APPLICATION OF SECTION 904 IN CASE OF INCOME COVERED BY
TRANSITIONAL RULES
Section 1810(a)(5) of Pub. L. 99-514, as amended by Pub. L.
100-647, title I, Sec. 1018(g)(1), Nov. 10, 1988, 102 Stat. 3582,
provided that: "For purposes of section 121(b)(5) of the Tax Reform
Act of 1984 [Pub. L. 98-369, set out above] (relating to separate
application of section 904 [of the Internal Revenue Code of 1954
[now 1986]] in case of income covered by transitional rules), any
carryover under section 904(c) of the Internal Revenue Code of 1954
[now 1986] allowed to a taxpayer which was incorporated on August
31, 1962, attributable to taxes paid or accrued in taxable years
beginning in 1981, 1982, 1983, or 1984, with respect to amounts
included in gross income under section 951 of such Code in respect
of a controlled foreign corporation which was incorporated on May
27, 1977, shall be treated as taxes paid or accrued on income
separately treated under such section 121(b)(5)."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 30A, 56, 59, 245, 367,
383, 535, 552, 593, 667, 841, 864, 865, 901, 902, 906, 907, 936,
952, 954, 960, 988, 1291, 1373, 6038, 6501 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 905 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
Sec. 905. Applicable rules
-STATUTE-
(a) Year in which credit taken
The credits provided in this subpart may, at the option of the
taxpayer and irrespective of the method of accounting employed in
keeping his books, be taken in the year in which the taxes of the
foreign country or the possession of the United States accrued,
subject, however, to the conditions prescribed in subsection (c).
If the taxpayer elects to take such credits in the year in which
the taxes of the foreign country or the possession of the United
States accrued, the credits for all subsequent years shall be taken
on the same basis, and no portion of any such taxes shall be
allowed as a deduction in the same or any succeeding year.
(b) Proof of credits
The credits provided in this subpart shall be allowed only if the
taxpayer establishes to the satisfaction of the Secretary -
(1) the total amount of income derived from sources without the
United States, determined as provided in part I,
(2) the amount of income derived from each country, the tax
paid or accrued to which is claimed as a credit under this
subpart, such amount to be determined under regulations
prescribed by the Secretary, and
(3) all other information necessary for the verification and
computation of such credits.
(c) Adjustments to accrued taxes
(1) In general
If -
(A) accrued taxes when paid differ from the amounts claimed
as credits by the taxpayer,
(B) accrued taxes are not paid before the date 2 years after
the close of the taxable year to which such taxes relate, or
(C) any tax paid is refunded in whole or in part,
the taxpayer shall notify the Secretary, who shall redetermine
the amount of the tax for the year or years affected. The
Secretary may prescribe adjustments to the pools of post-1986
foreign income taxes and the pools of post-1986 undistributed
earnings under sections 902 and 960 in lieu of the
redetermination under the preceding sentence.
(2) Special rule for taxes not paid within 2 years
(A) In general
Except as provided in subparagraph (B), in making the
redetermination under paragraph (1), no credit shall be allowed
for accrued taxes not paid before the date referred to in
subparagraph (B) of paragraph (1).
(B) Taxes subsequently paid
Any such taxes if subsequently paid -
(i) shall be taken into account -
(I) in the case of taxes deemed paid under section 902 or
section 960, for the taxable year in which paid (and no
redetermination shall be made under this section by reason
of such payment), and
(II) in any other case, for the taxable year to which
such taxes relate, and
(ii) shall be translated as provided in section
986(a)(2)(A).
(3) Adjustments
The amount of tax (if any) due on any redetermination under
paragraph (1) shall be paid by the taxpayer on notice and demand
by the Secretary, and the amount of tax overpaid (if any) shall
be credited or refunded to the taxpayer in accordance with
subchapter B of chapter 66 (section 6511 et seq.).
(4) Bond requirements
In the case of any tax accrued but not paid, the Secretary, as
a condition precedent to the allowance of the credit provided in
this subpart, may require the taxpayer to give a bond, with
sureties satisfactory to and approved by the Secretary, in such
sum as the Secretary may require, conditioned on the payment by
the taxpayer of any amount of tax found due on any such
redetermination. Any such bond shall contain such further
conditions as the Secretary may require.
(5) Other special rules
In any redetermination under paragraph (1) by the Secretary of
the amount of tax due from the taxpayer for the year or years
affected by a refund, the amount of the taxes refunded for which
credit has been allowed under this section shall be reduced by
the amount of any tax described in section 901 imposed by the
foreign country or possession of the United States with respect
to such refund; but no credit under this subpart, or deduction
under section 164, shall be allowed for any taxable year with
respect to any such tax imposed on the refund. No interest shall
be assessed or collected on any amount of tax due on any
redetermination by the Secretary, resulting from a refund to the
taxpayer, for any period before the receipt of such refund,
except to the extent interest was paid by the foreign country or
possession of the United States on such refund for such period.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 288; Pub. L. 85-866, title I,
Sec. 103(b), Sept. 2, 1958, 72 Stat. 1675; Pub. L. 94-455, title
XIX, Secs. 1901(a)(114), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1784, 1834; Pub. L. 96-603, Sec. 2(c)(1), Dec. 28, 1980, 94 Stat.
3509; Pub. L. 97-248, title III, Sec. 343(a), Sept. 3, 1982, 96
Stat. 635; Pub. L. 105-34, title XI, Sec. 1102(a)(2), Aug. 5, 1997,
111 Stat. 964.)
-MISC1-
AMENDMENTS
1997 - Subsec. (c). Pub. L. 105-34 amended heading and text of
subsec. (c) generally. Prior to amendment, subsec. (c) read as
follows: "If accrued taxes when paid differ from the amounts
claimed as credits by the taxpayer, or if any tax paid is refunded
in whole or in part, the taxpayer shall notify the Secretary, who
shall redetermine the amount of the tax for the year or years
affected. The amount of tax due on such redetermination, if any,
shall be paid by the taxpayer on notice and demand by the
Secretary, or the amount of tax overpaid, if any, shall be credited
or refunded to the taxpayer in accordance with subchapter B of
chapter 66 (sec. 6511 and following). In the case of such a tax
accrued but not paid, the Secretary, as a condition precedent to
the allowance of this credit, may require the taxpayer to give a
bond, with sureties satisfactory to and to be approved by the
Secretary, in such sum as the Secretary may require, conditioned on
the payment by the taxpayer of any amount of tax found due on any
such redetermination; and the bond herein prescribed shall contain
such further conditions as the Secretary may require. In such
redetermination by the Secretary of the amount of tax due from the
taxpayer for the year or years affected by a refund, the amount of
the taxes refunded for which credit has been allowed under this
section shall be reduced by the amount of any tax described in
section 901 imposed by the foreign country or possession of the
United States with respect to such refund; but no credit under this
subpart, and no deduction under section 164 (relating to deduction
for taxes) shall be allowed for any taxable year with respect to
such tax imposed on the refund. No interest shall be assessed or
collected on any amount of tax due on any redetermination by the
Secretary, resulting from a refund to the taxpayer, for any period
before the receipt of such refund, except to the extent interest
was paid by the foreign country or possession of the United States
on such refund for such period."
1982 - Subsec. (c). Pub. L. 97-248, Sec. 343(a), struck out
provision that, although no interest can be assessed or collected
on any amount of tax due on any redetermination by the Secretary,
resulting from a refund to the taxpayer, for any period before the
receipt of such refund, except to the extent interest has been paid
by the foreign country or possession of the United States on such
refund for such period, that prohibition does not apply (with
respect to any period after the refund or adjustment in the foreign
taxes) if the taxpayer fails to notify the Secretary (on or before
the date prescribed by regulations for giving such notice) unless
it is shown that such failure is due to reasonable cause and not
due to willful neglect.
1980 - Subsec. (c). Pub. L. 96-603 inserted provision that the
preceding sentence not apply, with respect to any period after the
refund or adjustment in the foreign taxes, if the taxpayer fails to
notify the Secretary, on or before the date prescribed by
regulations for giving such notice, unless it is shown that such
failure is due to reasonable cause and not due to willful neglect.
1976 - Subsec. (b). Pub. L. 94-455, Secs. 1901(a)(114),
1906(b)(13)(A), struck out provision allowing credits to be taken
for tax on royalties paid, accrued and derived from sources within
the United Kingdom of Britain and Northern Ireland and struck out
"or his delegate" after "Secretary", in two places.
Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary" in eight places.
1958 - Subsec. (b). Pub. L. 85-866 inserted sentence deeming
recipient of a royalty or other amount for use of copyright,
patent, and other like property derived from sources within United
Kingdom, to have paid or accrued taxes paid or accrued to United
Kingdom with respect to royalty if recipient elects to include in
its gross income the amount of such United Kingdom tax.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1102(c)(2) of Pub. L. 105-34 provided that: "The
amendment made by subsection (a)(2) [amending this section] shall
apply to taxes which relate to taxable years beginning after
December 31, 1997."
EFFECTIVE DATE OF 1982 AMENDMENT
Section 343(b) of Pub. L. 97-248 provided that: "The amendment
made by subsection (a) [amending this section] shall have the same
effect as if the last sentence of section 905(c) had never been
enacted."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-603 applicable with respect to employer
contributions or accruals for taxable years beginning after Dec.
31, 1979, election to apply amendments retroactively with respect
to foreign subsidiaries, allowance or prior deductions in case of
certain funded branch plans, and time and manner for making
elections, see section 2(e) of Pub. L. 96-603, set out as an
Effective Date note under section 404A of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(114) of Pub. L. 94-455 applicable
with respect to 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 1958 AMENDMENT
Section 103(c) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) of this section [amending section 131(e) of
Internal Revenue Code of 1939] shall apply for all taxable years
beginning on or after January 1, 1950, as to which section 131 of
the Internal Revenue Code of 1939 is the applicable provision. The
amendment made by subsection (b) of this section [amending this
section] shall apply with respect to taxable years beginning after
December 31, 1953, and ending after August 16, 1954. No interest
shall be allowed or paid on any overpayment resulting from the
amendments made by subsections (a) and (b) of this section."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 404A, 986, 989, 6040,
6213, 6422, 6501, 6504, 6689, 7103 of this title.
-End-
-CITE-
26 USC Sec. 906 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
Sec. 906. Nonresident alien individuals and foreign corporations
-STATUTE-
(a) Allowance of credit
A nonresident alien individual or a foreign corporation engaged
in trade or business within the United States during the taxable
year shall be allowed a credit under section 901 for the amount of
any income, war profits, and excess profits taxes paid or accrued
during the taxable year (or deemed, under section 902, paid or
accrued during the taxable year) to any foreign country or
possession of the United States with respect to income effectively
connected with the conduct of a trade or business within the United
States.
(b) Special rules
(1) For purposes of subsection (a) and for purposes of
determining the deductions allowable under sections 873(a) and
882(c), in determining the amount of any tax paid or accrued to any
foreign country or possession there shall not be taken into account
any amount of tax to the extent the tax so paid or accrued is
imposed with respect to income from sources within the United
States which would not be taxed by such foreign country or
possession but for the fact that -
(A) in the case of a nonresident alien individual, such
individual is a citizen or resident of such foreign country or
possession, or
(B) in the case of a foreign corporation, such corporation was
created or organized under the law of such foreign country or
possession or is domiciled for tax purposes in such country or
possession.
(2) For purposes of subsection (a), in applying section 904 the
taxpayer's taxable income shall be treated as consisting only of
the taxable income effectively connected with the taxpayer's
conduct of a trade or business within the United States.
(3) The credit allowed pursuant to subsection (a) shall not be
allowed against any tax imposed by section 871(a) (relating to
income of nonresident alien individual not connected with United
States business) or 881 (relating to income of foreign corporations
not connected with United States business).
(4) For purposes of sections 902(a) and 78, a foreign corporation
choosing the benefits of this subpart which receives dividends
shall, with respect to such dividends, be treated as a domestic
corporation.
(5) No credit shall be allowed under this section for any income,
war profits, and excess profits taxes paid or accrued with respect
to the foreign trade income (within the meaning of section 923(b))
(!1) of a FSC.
(6) For purposes of section 902, any income, war profits, and
excess profits taxes paid or accrued (or deemed paid or accrued) to
any foreign country or possession of the United States with respect
to income effectively connected with the conduct of a trade or
business within the United States shall not be taken into account,
and any accumulated profits attributable to such income shall not
be taken into account.
(7) No credit shall be allowed under this section against the tax
imposed by section 884.
-SOURCE-
(Added Pub. L. 89-809, title I, Sec. 106(a)(1), Nov. 13, 1966, 80
Stat. 1568; amended Pub. L. 98-369, div. A, title VIII, Sec.
801(d)(3), July 18, 1984, 98 Stat. 996; Pub. L. 99-514, title XII,
Sec. 1241(c), title XVIII, Sec. 1876(d)(3), Oct. 22, 1986, 100
Stat. 2580, 2899; Pub. L. 100-647, title I, Sec. 1012(q)(10), Nov.
10, 1988, 102 Stat. 3524.)
-REFTEXT-
REFERENCES IN TEXT
Section 923, referred to in subsec. (b)(5), was repealed by Pub.
L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
-MISC1-
AMENDMENTS
1988 - Subsec. (b)(6), (7). Pub. L. 100-647 redesignated par.
(6), relating to credit against tax imposed by section 884, as (7).
1986 - Subsec. (b)(6). Pub. L. 99-514, Sec. 1876(d)(3), added
par. (6) relating to credit for income, war profits, and excess
profits taxes paid or accrued to a foreign country or possession of
the United States.
Pub. L. 99-514, Sec. 1241(c), added par. (6) relating to credit
against tax imposed by section 884.
1984 - Subsec. (b)(5). Pub. L. 98-369 added par. (5).
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 1241(c) 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.
Amendment by section 1876(d)(3) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to transactions after Dec.
31, 1984, in taxable years ending after such date, see section
805(a)(1) of Pub. L. 98-369, as amended, set out as a note under
section 245 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years beginning after
Dec. 31, 1966, and, in applying section 904 of this title with
respect to this section, no amount to be carried from or to any
taxable year beginning before Jan. 1, 1967, and no such year to be
taken into account, see section 106(a)(6) of Pub. L. 89-809, set
out as an Effective Date of 1966 Amendment note under section 874
of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 841, 873, 874, 882, 885,
901 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 907 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
Sec. 907. Special rules in case of foreign oil and gas income
-STATUTE-
(a) Reduction in amount allowed as foreign tax under section 901
In applying section 901, the amount of any oil and gas extraction
taxes paid or accrued (or deemed to have been paid) during the
taxable year which would (but for this subsection) be taken into
account for purposes of section 901 shall be reduced by the amount
(if any) by which the amount of such taxes exceeds the product of -
(1) the amount of the foreign oil and gas extraction income for
the taxable year,
(2) multiplied by -
(A) in the case of a corporation, the percentage which is
equal to the highest rate of tax specified under section 11(b),
or
(B) in the case of an individual, a fraction the numerator of
which is the tax against which the credit under section 901(a)
is taken and the denominator of which is the taxpayer's entire
taxable income.
(b) Foreign taxes on foreign oil related income
For purposes of this subtitle, in the case of taxes paid or
accrued to any foreign country with respect to foreign oil related
income, the term "income, war profits, and excess profits taxes"
shall not include any amount paid or accrued after December 31,
1982, to the extent that the Secretary determines that the foreign
law imposing such amount of tax is structured, or in fact operates,
so that the amount of tax imposed with respect to foreign oil
related income will generally be materially greater, over a
reasonable period of time, than the amount generally imposed on
income that is neither foreign oil related income nor foreign oil
and gas extraction income. In computing the amount not treated as
tax under this subsection, such amount shall be treated as a
deduction under the foreign law.
(c) Foreign income definitions and special rules
For purposes of this section -
(1) Foreign oil and gas extraction income
The term "foreign oil and gas extraction income" means the
taxable income derived from sources without the United States and
its possessions from -
(A) the extraction (by the taxpayer or any other person) of
minerals from oil or gas wells, or
(B) the sale or exchange of assets used by the taxpayer in
the trade or business described in subparagraph (A).
Such term does not include any dividend or interest income which
is passive income (as defined in section 904(d)(2)(A)).
(2) Foreign oil related income
The term "foreign oil related income" means the taxable income
derived from sources outside the United States and its
possessions from -
(A) the processing of minerals extracted (by the taxpayer or
by any other person) from oil or gas wells into their primary
products,
(B) the transportation of such minerals or primary products,
(C) the distribution or sale of such minerals or primary
products,
(D) the disposition of assets used by the taxpayer in the
trade or business described in subparagraph (A), (B), or (C),
or
(E) the performance of any other related service.
Such term does not include any dividend or interest income which
is passive income (as defined in section 904(d)(2)(A)).
(3) Dividends, interest, partnership distribution, etc.
The term "foreign oil and gas extraction income" and the term
"foreign oil related income" include -
(A) dividends and interest from a foreign corporation in
respect of which taxes are deemed paid by the taxpayer under
section 902,
(B) amounts with respect to which taxes are deemed paid under
section 960(a), and
(C) the taxpayer's distributive share of the income of
partnerships.(!1)
to the extent such dividends, interest, amounts, or distributive
share is attributable to foreign oil and gas extraction income,
or to foreign oil related income, as the case may be; except that
interest described in subparagraph (A) shall not be taken into
account in computing foreign oil and gas extraction income but
shall be taken into account in computing foreign oil-related
income.
(4) Recapture of foreign oil and gas extraction losses by
recharacterizing later extraction income
(A) In general
That portion of the income of the taxpayer for the taxable
year which (but for this paragraph) would be treated as foreign
oil and gas extraction income shall be treated as income (from
sources without the United States) which is not foreign oil and
gas extraction income to the extent of the excess of -
(i) the aggregate amount of foreign oil extraction losses
for preceding taxable years beginning after December 31,
1982, over
(ii) so much of such aggregate amount as was
recharacterized under this subparagraph for preceding taxable
years beginning after December 31, 1982.
(B) Foreign oil extraction loss defined
(i) In general
For purposes of this paragraph, the term "foreign oil
extraction loss" means the amount by which -
(I) the gross income for the taxable year from sources
without the United States and its possessions (whether or
not the taxpayer chooses the benefits of this subpart for
such taxable year) taken into account in determining the
foreign oil and gas extraction income for such year, is
exceeded by
(II) the sum of the deductions properly apportioned or
allocated thereto.
(ii) Net operating loss deduction not taken into account
For purposes of clause (i), the net operating loss
deduction allowable for the taxable year under section 172(a)
shall not be taken into account.
(iii) Expropriation and casualty losses not taken into
account
For purposes of clause (i), there shall not be taken into
account -
(I) any foreign expropriation loss (as defined in section
172(h) (as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990)) for
the taxable year, or
(II) any loss for the taxable year which arises from
fire, storm, shipwreck, or other casualty, or from theft,
to the extent such loss is not compensated for by insurance
or otherwise.
(5) Oil and gas extraction taxes
The term "oil and gas extraction taxes" means any income, war
profits, and excess profits tax paid or accrued (or deemed to
have been paid under section 902 or 960) during the taxable year
with respect to foreign oil and gas extraction income (determined
without regard to paragraph (4)) or loss which would be taken
into account for purposes of section 901 without regard to this
section.
(d) Disregard of certain posted prices, etc.
For purposes of this chapter, in determining the amount of
taxable income in the case of foreign oil and gas extraction
income, if the oil or gas is disposed of, or is acquired other than
from the government of a foreign country, at a posted price (or
other pricing arrangement) which differs from the fair market value
for such oil or gas, such fair market value shall be used in lieu
of such posted price (or other pricing arrangement).
[(e) Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(32), Nov.
5, 1990, 104 Stat. 1388-521]
(f) Carryback and carryover of disallowed credits
(1) In general
If the amount of the oil and gas extraction taxes paid or
accrued during any taxable year exceeds the limitation provided
by subsection (a) for such taxable year (hereinafter in this
subsection referred to as the "unused credit year"), such excess
shall be deemed to be oil and gas extraction taxes paid or
accrued in the second preceding taxable year, in the first
preceding taxable year, and in the first, second, third, fourth,
or fifth succeeding taxable year, in that order and to the extent
not deemed tax paid or accrued in a prior taxable year by reason
of the limitation imposed by paragraph (2). Such amount deemed
paid or accrued in any taxable year may be availed of only as a
tax credit and not as a deduction and only if the taxpayer for
such year chooses to have the benefits of this subpart as to
taxes paid or accrued for that year to foreign countries or
possessions. For purposes of this subsection, the terms "second
preceding taxable year", and "first preceding taxable year" do
not include any taxable year ending before January 1, 1975.
(2) Limitation
The amount of the unused oil and gas extraction taxes which
under paragraph (1) may be deemed paid or accrued in any
preceding or succeeding taxable year shall not exceed the lesser
of -
(A) the amount by which the limitation provided by subsection
(a) for such taxable year exceeds the sum of -
(i) the oil and gas extraction taxes paid or accrued during
such taxable year, plus
(ii) the amounts of the oil and gas extraction taxes which
by reason of this subsection are deemed paid or accrued in
such taxable year and are attributable to taxable years
preceding the unused credit year; or
(B) the amount by which the limitation provided by section
904 for such taxable year exceeds the sum of -
(i) the taxes paid or accrued (or deemed to have been paid
under section 902 or 960) to all foreign countries and
possessions of the United States during such taxable year,
(ii) the amount of such taxes which were deemed paid or
accrued in such taxable year under section 904(c) and which
are attributable to taxable years preceding the unused credit
year, plus
(iii) the amount of the oil and gas extraction taxes which
by reason of this subsection are deemed paid or accrued in
such taxable year and are attributable to taxable years
preceding the unused credit year.
(3) Special rules
(A) In the case of any taxable year which is an unused credit
year under this subsection and which is an unused credit year
under section 904(c), the provisions of this subsection shall be
applied before section 904(c).
(B) For purposes of determining the amount of taxes paid or
accrued in any taxable year which may be deemed paid or accrued
in a preceding or succeeding taxable year under section 904(c),
any tax deemed paid or accrued in such preceding or succeeding
taxable year under this subsection shall be considered to be tax
paid or accrued in such preceding or succeeding taxable year.
-SOURCE-
(Added Pub. L. 94-12, title VI, Sec. 601(a), Mar. 29, 1975, 89
Stat. 54; amended Pub. L. 94-455, title X, Secs. 1031(b)(6),
1032(b), 1035(a), (b), (d)(1), (2), 1052(c)(4), Oct. 4, 1976, 90
Stat. 1623, 1626, 1630-1632, 1648; Pub. L. 95-600, title III, Sec.
301(b)(14), title VII, Sec. 701(u)(8)(A), (B), Nov. 6, 1978, 92
Stat. 2822, 2916; Pub. L. 97-248, title II, Sec. 211(a)-(c)(1),
(d), Sept. 3, 1982, 96 Stat. 448-450; Pub. L. 100-647, title I,
Sec. 1012(g)(6), Nov. 10, 1988, 102 Stat. 3501; Pub. L. 101-508,
title XI, Sec. 11801(a)(32), Nov. 5, 1990, 104 Stat. 1388-521; Pub.
L. 103-66, title XIII, Sec. 13235(a)(1), Aug. 10, 1993, 107 Stat.
504; Pub. L. 104-188, title I, Sec. 1704(t)(36), Aug. 20, 1996, 110
Stat. 1889.)
-REFTEXT-
REFERENCES IN TEXT
Section 172(h), referred to in subsec. (c)(4)(B)(iii)(I), was
repealed by Pub. L. 101-508, title XI, Sec. 11811(b)(1), Nov. 5,
1990, 104 Stat. 1388-532.
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsec. (c)(4)(B)(iii)(I), is the date of
enactment of Pub. L. 101-508, title XI, which was approved Nov. 5,
1990.
-MISC1-
AMENDMENTS
1996 - Subsec. (c)(4)(B)(iii)(I). Pub. L. 104-188 inserted "(as
in effect on the day before the date of the enactment of the
Revenue Reconciliation Act of 1990)" after "section 172(h)".
1993 - Subsec. (c)(1), (2). Pub. L. 103-66 inserted concluding
provisions.
1990 - Subsec. (e). Pub. L. 101-508, Sec. 11801(a)(32), struck
out subsec. (e) which read as follows:
"(1) Credits arising in taxable years beginning before january 1,
1983. - The amount of taxes paid or accrued in any taxable year
beginning before January 1, 1983 (hereinafter in this paragraph
referred to as the 'excess credit year') which under section 904(c)
or 907(f) may be deemed paid or accrued in a taxable year beginning
after December 31, 1982, shall not exceed the amount which could
have been deemed paid or accrued if sections 907(b), 907(f), and
904(f)(4) (as in effect on the day before the date of the enactment
of the Tax Equity and Fiscal Responsibility Act of 1982) remained
in effect for taxable years beginning after December 31, 1982.
"(2) Carryback of credits arising in taxable years beginning
after december 31, 1982. - The amount of the taxes paid or accrued
in a taxable year beginning after December 31, 1982, which may be
deemed paid or accrued under section 904(c) or 907(f) in a taxable
year beginning before January 1, 1983, shall not exceed the amount
which could have been deemed paid or accrued if sections 907(b),
907(f), and 904(f)(4) (as in effect on the day before the date of
the enactment of the Tax Equity and Fiscal Responsibility Act of
1982) remained in effect for taxable years beginning after December
31, 1982."
Subsec. (f)(3)(C). Pub. L. 101-508, Sec. 11801(a)(32), struck out
subpar. (C) which read as follows: "For purposes of determining the
amount of the unused oil and gas extraction taxes which under
paragraph (1) may be deemed paid or accrued in any taxable year
ending before January 1, 1977, subparagraph (A) of paragraph (2)
shall be applied as if the amendment made by section 1035(a) of the
Tax Reform Act of 1976 applied to such taxable year."
1988 - Subsec. (c)(3). Pub. L. 100-647, Sec. 1012(g)(6)(B),
struck out "and dividends described in subparagraph (B)" after
"described in subparagraph (A)" in closing provisions.
Subsec. (c)(3)(B) to (D). Pub. L. 100-647, Sec. 1012(g)(6)(A),
redesignated subpars. (C) and (D) as (B) and (C), respectively, and
struck out former subpar. (B) which read as follows: "dividends
from a domestic corporation which are treated under section
861(a)(2)(A) as income from sources without the United States,".
1982 - Subsec. (b). Pub. L. 97-248, Sec. 211(c)(1), added subsec.
(b). Former subsec. (b), which had provided that section 904 be
applied separately with respect to foreign oil related income and
other taxable income, was struck out.
Subsec. (c)(2). Pub. L. 97-248, Sec. 211(b), in subpar. (A)
substituted "the processing of minerals extracted (by the taxpayer
or by any other person) from oil or gas wells into their primary
products" for "the extraction (by the taxpayer or any other person)
of minerals from oil or gas wells", deleted subpar. (B) which had
provided that foreign oil related income meant the taxable income
derived from sources outside the United States and its possessions
from the processing of minerals from oil or gas wells into their
primary products, redesignated subpar. (C) as (B), redesignated
subpar. (D) as (C) and in subpar. (C) as so redesignated struck out
"or" at the end, redesignated subpar. (E) as (D) and in subpar. (D)
as so redesignated substituted "disposition" for "sale or
exchange", and "or (C), or" for "(C), or (D)", struck out the
period at the end, and added subpar. (E).
Subsec. (c)(4). Pub. L. 97-248, Sec. 211(a), substituted
provisions regarding the recapture of foreign oil and gas
extraction losses by recharacterization of later extraction income
for provisions that if, for any foreign country for any taxable
year, the taxpayer would have had a net operating loss if only
items from sources within such country (including deductions
properly apportioned or allocated thereto) which related to the
extraction of minerals from oil or gas wells had been taken into
account, such items would not be taken into account in computing
foreign oil and gas extraction income for such year, but would be
taken into account in computing foreign oil related income for such
year.
Subsec. (e). Pub. L. 97-248, Sec. 211(d)(1), substituted rules
regarding credits arising in taxable years beginning before Jan. 1,
1983, for rules regarding taxable years ending after Dec. 31, 1974,
in par. (1), and in par. (2) substituted rules regarding carryback
of credits arising in taxable years beginning after Dec. 31, 1982,
for rules regarding taxable years ending after Dec. 31, 1975.
Subsec. (f)(1). Pub. L. 97-248, Sec. 211(d)(2)(A), substituted
"such excess" for "so much of such excess as does not exceed 2
percent of foreign oil and gas extraction income for such taxable
year" in first sentence, and struck out former provision that had
directed that the above substitution be made regarding taxes deemed
paid or accrued in any taxable year which ended in 1975, 1976, or
1977.
Subsec. (f)(2)(B). Pub. L. 97-248, Sec. 211(d)(2)(B)(i),
substituted "provided by section 904 for such taxable year" for
"provided by section 904 on taxes paid or accrued with respect to
foreign oil-related income for such taxable year" in the
introductory provisions, and in cl. (i) substituted "the United
States during such taxable year" for "the United States with
respect to such income during such taxable year".
Subsec. (f)(3)(A). Pub. L. 97-248, Sec. 211(d)(2)(B)(ii),
substituted "section 904(c)" for "section 904(c) with respect to
oil-related income".
Subsec. (f)(3)(B). Pub. L. 97-248, Sec. 211(d)(2)(B)(iii), struck
out "oil-related" after "determining the amount of".
1978 - Subsec. (a)(2). Pub. L. 95-600, Secs. 301(b)(14),
701(u)(8)(A), designated existing provisions as subpar. (A),
inserted applicability to corporations and generally reworked
applicable formula, and added subpar. (B).
Subsec. (b). Pub. L. 95-600, Sec. 701(u)(8)(B), substituted
provisions relating to applicability of section 904 separately to
foreign oil related income and other taxable income for provisions
relating to applicability of section 904 to corporations and other
taxpayers.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1035(a), substituted
"oil and gas extraction taxes" for "income, war profits, and excess
profits taxes" after "the amount of any" and, in par. (2),
substituted "the percentage which is the sum of the normal tax rate
and the surtax rate for the taxable year specified in section 11"
for provisions giving the percentage multiplier for years ending
1975, 1976, and after 1976.
Subsec. (b). Pub. L. 94-455, Secs. 1032(b)(1), 1035(b), inserted
provisions making a distinction between corporations and other
taxpayers and rules applicable to each and, as amended, struck out
provision requiring the overall limitation, rather than the
per-country limitation, be applied in the case of a corporation to
foreign oil-related income and, a taxpayer other than a
corporation, to foreign oil and gas extraction income.
Subsec. (c)(5). Pub. L. 94-455, Sec. 1035(d)(2), added par. (5).
Subsec. (e)(1). Pub. L. 94-455, Sec. 1031(b)(6)(A), substituted
"(d) and (e) of section 904 (as in effect on the day before the
date of enactment of the Tax Reform Act of 1976)" for "(d) and (e)
of section 904" after "In applying subsections".
Subsec. (e)(2). Pub. L. 94-455, Sec. 1031(b)(6), substituted "(d)
and (e) of section 904 (as in effect on the day before the date of
enactment of the Tax Reform Act of 1976)" for "(d) and (e) of
section 904" after "In applying subsections", "section 904(a)(1)
(as so in effect)" for "section 904(a)(1)" after "provided by
section" and, in subpar. (A), "section 904(e)(2) (as so in effect)"
for "section 904(e)(2)" after "sentence of section".
Subsec. (f). Pub. L. 94-455, Secs. 1032(b)(2), 1035(d)(1), added
subsec. (f). Former subsec. (f), relating to recapture of foreign
oil related loss, was struck out.
Subsec. (g). Pub. L. 94-455, Secs. 1032(b)(2), 1035(d)(1),
1052(c)(4), struck out subsec. (g) relating to Western Hemisphere
trade corporations which are members of an affiliated group.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1992, see section 13235(c) of Pub. L. 103-66, set
out as a note under section 904 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 1982 AMENDMENT
Section 211(e) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(5), 96 Stat. 2401; Pub. L. 98-369, div. A,
title VII, Sec. 712(e), July 18, 1984, 98 Stat. 947, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
904 of this title] shall apply to taxable years beginning after
December 31, 1982.
"(2) Retention of old sections 907(b) and 904(f)(4) where
taxpayer had separate basket foreign loss. -
"(A) In general. - If, after applying old sections 907(b) and
904(f)(4) to a taxable year beginning before January 1, 1983, the
taxpayer had a separate basket foreign loss, such loss shall not
be recaptured from income of a kind not taken into account in
computing the amount of such separate basket foreign loss more
rapidly than ratably over the 8-year period (or such shorter
period as the taxpayer may select) beginning with the first
taxable year beginning after December 31, 1982.
"(B) Definitions. - For purposes of this paragraph -
"(i) The term 'separate basket foreign loss' means any
foreign loss attributable to activities taken into account (or
not taken into account) in determining foreign oil related
income (as defined in old section 907(c)(2)).
"(ii) An 'old' section is such section as in effect on the
day before the date of the enactment of this Act [Sept. 3,
1982]."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 301(b)(14) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 301(c) of
Pub. L. 95-600, set out as a note under section 11 of this title.
Section 701(u)(8)(D) of Pub. L. 95-600, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(i) The amendments made by this paragraph [amending this section
and section 904 of this title] shall apply, in the case of
individuals, to taxable years ending after December 31, 1974, and,
in the case of corporations, to taxable years ending after December
31, 1976.
"(ii) In the case of any taxable year ending after December 31,
1975, with respect to foreign oil related income (within the
meaning of section 907(c) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]), the overall limitation provided by section
904(a)(2) of such Code shall apply and the per-country limitation
provided by section 904(a)(1) of such Code shall not apply."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1031(b)(6)(A) of Pub. L. 94-455 applicable
to taxable years beginning after Dec. 31, 1975, with exceptions for
certain mining operations, income from possessions, and carryback
and carryover in the case of mining operations and income from a
possession, see section 1031(c) of Pub. L. 94-455, set out as a
note under section 904 of this title.
Amendment by section 1032(b)(1) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, and amendment by
section 1032(b)(2) of Pub. L. 94-455 applicable to losses sustained
in taxable years beginning after Dec. 31, 1975, see section 1032(c)
of Pub. L. 94-455, set out as a note under section 904 of this
title.
Section 1035(e) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) The amendment made by subsection (a) [amending this section]
shall apply to taxable years ending after December 31, 1976.
"(2) The amendment made by subsection (b) [amending this section]
shall apply to taxable years ending after December 31, 1974; except
that the last sentence of section 907(b) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] shall only apply to taxable
years ending after December 31, 1975.
"(3) The amendment made by subsection (c) [enacting provisions
set out below] shall apply to taxable years beginning after June
29, 1976.
"(4) The amendments made by subsection (d) [amending this
section] shall apply to taxes paid or accrued during taxable years
ending after the date of the enactment of this Act [Oct. 4, 1976]."
Amendment by section 1052(c)(4) of Pub. L. 94-455 effective with
respect to taxable years beginning after December 31, 1979, see
section 1052(d) of Pub. L. 94-455, set out as a note under section
170 of this title.
EFFECTIVE DATE
Section 601(d) of Pub. L. 94-12 provided that: "The amendments
made by this section [enacting this section and amending section
901 of this title] shall apply to taxable years ending after
December 31, 1974; except that -
"(1) the second sentence of section 907(b) shall apply to
taxable years ending after December 31, 1975, and
"(2) the provisions of section 907(f) shall apply to losses
sustained in taxable years ending after December 31, 1975."
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.
TAX CREDIT FOR PRODUCTION-SHARING CONTRACTS
Section 1035(c) of Pub. L. 94-455, as amended by Pub. L. 95-600,
title VII, Secs. 701(u)(9), 703(h)(1), Nov. 6, 1978, 92 Stat. 2916,
2940; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that:
"(1) For purposes of section 901 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954], there shall be treated as income, war
profits, and excess profits taxes to be taken into account under
section 907(a) of such Code amounts designated as income taxes of a
foreign government by such government (which otherwise would not be
treated as taxes for purposes of section 901 of such Code) with
respect to production-sharing contracts for the extraction of
foreign oil or gas.
"(2) The amounts specified in paragraph (1) shall not exceed the
lessor of -
"(A) the product of the foreign oil and gas extraction income
(as defined in section 907(c) of such Code) with respect to all
such production-sharing contracts multiplied by the sum of the
normal tax rate and the surtax rate for the taxable year
specified in section 11 of such Code, or
"(B) the excess of the total amount of foreign oil and gas
extraction income (as so defined) for the taxable year multiplied
by the sum of the normal tax rate and the surtax rate for the
taxable year specified in section 11 of such Code over the amount
of any income, war profits, and excess profits taxes paid or
accrued (or deemed to have been paid) without regard to paragraph
(1) during the taxable year with respect to foreign oil and gas
extraction income.
"(3) The production-sharing contracts taken into account for
purposes of paragraph (1) shall be those contracts which were
entered into before April 8, 1976, for the sharing of foreign oil
and gas production with a foreign government (or an entity owned by
such government) with respect to which amounts claimed as taxes
paid or accrued to such foreign government for taxable years
beginning before June 30, 1976, will not be disallowed as taxes. A
contract described in the preceding sentence shall be taken into
account under paragraph (1) only with respect to amounts (A) paid
or accrued to the foreign government before January 1, 1978, and
(B) attributable to income earned before such date."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 245, 865, 904, 954, 6501
of this title.
-FOOTNOTE-
(!1) So in original. The period probably should be a comma.
-End-
-CITE-
26 USC Sec. 908 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
-HEAD-
Sec. 908. Reduction of credit for participation in or co-operation
with an international boycott
-STATUTE-
(a) In general
If a person, or a member of a controlled group (within the
meaning of section 993(a)(3)) which includes such person,
participates in or cooperates with an international boycott during
the taxable year (within the meaning of section 999(b)), the amount
of the credit allowable under section 901 to such person, or under
section 902 or 960 to United States shareholders of such person,
for foreign taxes paid during the taxable year shall be reduced by
an amount equal to the product of -
(1) the amount of the credit which, but for this section, would
be allowed under section 901 for the taxable year, multiplied by
(2) the international boycott factor (determined under section
999).
(b) Application with sections 275(a)(4) and 78
Section 275(a)(4) and section 78 shall not apply to any amount of
taxes denied credit under subsection (a).
-SOURCE-
(Added Pub. L. 94-455, title X, Sec. 1061(a), Oct. 4, 1976, 90
Stat. 1649.)
-MISC1-
EFFECTIVE DATE
Section 1066(a) of Pub. L. 94-455 provided that:
"(1) General rule. - The amendments made by this part (other than
by section 1065) [enacting this section and section 999 of this
title and amending sections 952 and 995 of this title] apply to
participation in or cooperation with an international boycott more
than 30 days after the date of enactment of this Act [Oct. 4,
1976].
"(2) Existing contracts. - In the case of operations which
constitute participation in or cooperation with an international
boycott and which are carried out in accordance with the terms of a
binding contract entered into before September 2, 1976, the
amendments made by this part (other than by section 1065) apply to
such participation or cooperation after December 31, 1977."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 999 of this title.
-End-
-CITE-
26 USC Subpart B - Earned Income of Citizens or Residents
of United States 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart B - Earned Income of Citizens or Residents of United States
-HEAD-
SUBPART B - EARNED INCOME OF CITIZENS OR RESIDENTS OF UNITED STATES
-MISC1-
Sec.
911. Citizens or residents of the United States living
abroad.
912. Exemption for certain allowances.
[913. Repealed.]
AMENDMENTS
1981 - Pub. L. 97-34, title I, Secs. 111(b)(1), 112(b)(1), Aug.
13, 1981, 95 Stat. 194, 195, substituted "Citizens or residents of
the United States living abroad" for "Income earned by individuals
in certain camps or from charitable services" in item 911 and
struck out item 913 "Deduction for certain expenses of living
abroad".
1980 - Pub. L. 96-595, Sec. 4(c)(2), Dec. 24, 1980, 94 Stat.
3467, inserted "or from charitable services" after "camps" in item
911.
1978 - Pub. L. 95-615, Secs. 202(g)(2), (3), 203(c), formerly
Secs. 202(f)(2), (3), 203(c), Nov. 8, 1978, 92 Stat. 3100, 3106,
renumbered Pub. L. 96-222, title I, Sec. 108(a)(1)(A), Apr. 1,
1980, 94 Stat. 223, inserted in subpart heading "or Residents"
after "Citizens", substituted in item 911 "Income earned by
individuals in certain camps" for "Earned income from sources
without the United States", and added item 913.
-End-
-CITE-
26 USC Sec. 911 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart B - Earned Income of Citizens or Residents of United States
-HEAD-
Sec. 911. Citizens or residents of the United States living abroad
-STATUTE-
(a) Exclusion from gross income
At the election of a qualified individual (made separately with
respect to paragraphs (1) and (2)), there shall be excluded from
the gross income of such individual, and exempt from taxation under
this subtitle, for any taxable year -
(1) the foreign earned income of such individual, and
(2) the housing cost amount of such individual.
(b) Foreign earned income
(1) Definition
For purposes of this section -
(A) In general
The term "foreign earned income" with respect to any
individual means the amount received by such individual from
sources within a foreign country or countries which constitute
earned income attributable to services performed by such
individual during the period described in subparagraph (A) or
(B) of subsection (d)(1), whichever is applicable.
(B) Certain amounts not included in foreign earned income
The foreign earned income for an individual shall not include
amounts -
(i) received as a pension or annuity,
(ii) paid by the United States or an agency thereof to an
employee of the United States or an agency thereof,
(iii) included in gross income by reason of section 402(b)
(relating to taxability of beneficiary of nonexempt trust) or
section 403(c) (relating to taxability of beneficiary under a
nonqualified annuity), or
(iv) received after the close of the taxable year following
the taxable year in which the services to which the amounts
are attributable are performed.
(2) Limitation on foreign earned income
(A) In general
The foreign earned income of an individual which may be
excluded under subsection (a)(1) for any taxable year shall not
exceed the amount of foreign earned income computed on a daily
basis at an annual rate equal to the exclusion amount for the
calendar year in which such taxable year begins.
(B) Attribution to year in which services are performed
For purposes of applying subparagraph (A), amounts received
shall be considered received in the taxable year in which the
services to which the amounts are attributable are performed.
(C) Treatment of community income
In applying subparagraph (A) with respect to amounts received
from services performed by a husband or wife which are
community income under community property laws applicable to
such income, the aggregate amount which may be excludable from
the gross income of such husband and wife under subsection
(a)(1) for any taxable year shall equal the amount which would
be so excludable if such amounts did not constitute community
income.
(D) Exclusion amount
(i) In general
The exclusion amount for any calendar year is the exclusion
amount determined in accordance with the following table (as
adjusted by clause (ii)):
LFor calendar year - 2The exclusion
amount is -
--------------------------------------------------------------------
1998 $72,000
1999 74,000
2000 76,000
2001 78,000
2002 and thereafter 80,000.
--------------------------------------------------------------------
(ii) Inflation adjustment
In the case of any taxable year beginning in a calendar
year after 2007, the $80,000 amount in clause (i) shall be
increased by an amount equal to the product of -
(I) such dollar amount, and
(II) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the taxable
year begins, determined by substituting "2006" for "1992"
in subparagraph (B) thereof.
If any increase determined under the preceding sentence is
not a multiple of $100, such increase shall be rounded to the
next lowest multiple of $100.
(c) Housing cost amount
For purposes of this section -
(1) In general
The term "housing cost amount" means an amount equal to the
excess of -
(A) the housing expenses of an individual for the taxable
year, over
(B) an amount equal to the product of -
(i) 16 percent of the salary (computed on a daily basis) of
an employee of the United States who is compensated at a rate
equal to the annual rate paid for step 1 of grade GS-14,
multiplied by
(ii) the number of days of such taxable year within the
applicable period described in subparagraph (A) or (B) of
subsection (d)(1).
(2) Housing expenses
(A) In general
The term "housing expenses" means the reasonable expenses
paid or incurred during the taxable year by or on behalf of an
individual for housing for the individual (and, if they reside
with him, for his spouse and dependents) in a foreign country.
The term -
(i) includes expenses attributable to the housing (such as
utilities and insurance), but
(ii) does not include interest and taxes of the kind
deductible under section 163 or 164 or any amount allowable
as a deduction under section 216(a).
Housing expenses shall not be treated as reasonable to the
extent such expenses are lavish or extravagant under the
circumstances.
(B) Second foreign household
(i) In general
Except as provided in clause (ii), only housing expenses
incurred with respect to that abode which bears the closest
relationship to the tax home of the individual shall be taken
into account under paragraph (1).
(ii) Separate household for spouse and dependents
If an individual maintains a separate abode outside the
United States for his spouse and dependents and they do not
reside with him because of living conditions which are
dangerous, unhealthful, or otherwise adverse, then -
(I) the words "if they reside with him" in subparagraph
(A) shall be disregarded, and
(II) the housing expenses incurred with respect to such
abode shall be taken into account under paragraph (1).
(3) Special rules where housing expenses not provided by employer
(A) In general
To the extent the housing cost amount of any individual for
any taxable year is not attributable to employer provided
amounts, such amount shall be treated as a deduction allowable
in computing adjusted gross income to the extent of the
limitation of subparagraph (B).
(B) Limitation
For purposes of subparagraph (A), the limitation of this
subparagraph is the excess of -
(i) the foreign earned income of the individual for the
taxable year, over
(ii) the amount of such income excluded from gross income
under subsection (a) for the taxable year.
(C) 1-year carryover of housing amounts not allowed by reason
of subparagraph (B)
(i) In general
The amount not allowable as a deduction for any taxable
year under subparagraph (A) by reason of the limitation of
subparagraph (B) shall be treated as a deduction allowable in
computing adjusted gross income for the succeeding taxable
year (and only for the succeeding taxable year) to the extent
of the limitation of clause (ii) for such succeeding taxable
year.
(ii) Limitation
For purposes of clause (i), the limitation of this clause
for any taxable year is the excess of -
(I) the limitation of subparagraph (B) for such taxable
year, over
(II) amounts treated as a deduction under subparagraph
(A) for such taxable year.
(D) Employer provided amounts
For purposes of this paragraph, the term "employer provided
amounts" means any amount paid or incurred on behalf of the
individual by the individual's employer which is foreign earned
income included in the individual's gross income for the
taxable year (without regard to this section).
(E) Foreign earned income
For purposes of this paragraph, an individual's foreign
earned income for any taxable year shall be determined without
regard to the limitation of subparagraph (A) of subsection
(b)(2).
(d) Definitions and special rules
For purposes of this section -
(1) Qualified individual
The term "qualified individual" means an individual whose tax
home is in a foreign country and who is -
(A) a citizen of the United States and establishes to the
satisfaction of the Secretary that he has been a bona fide
resident of a foreign country or countries for an uninterrupted
period which includes an entire taxable year, or
(B) a citizen or resident of the United States and who,
during any period of 12 consecutive months, is present in a
foreign country or countries during at least 330 full days in
such period.
(2) Earned income
(A) In general
The term "earned income" means wages, salaries, or
professional fees, and other amounts received as compensation
for personal services actually rendered, but does not include
that part of the compensation derived by the taxpayer for
personal services rendered by him to a corporation which
represents a distribution of earnings or profits rather than a
reasonable allowance as compensation for the personal services
actually rendered.
(B) Taxpayer engaged in trade or business
In the case of a taxpayer engaged in a trade or business in
which both personal services and capital are material
income-producing factors, under regulations prescribed by the
Secretary, a reasonable allowance as compensation for the
personal services rendered by the taxpayer, not in excess of 30
percent of his share of the net profits of such trade or
business, shall be considered as earned income.
(3) Tax home
The term "tax home" means, with respect to any individual, such
individual's home for purposes of section 162(a)(2) (relating to
traveling expenses while away from home). An individual shall not
be treated as having a tax home in a foreign country for any
period for which his abode is within the United States.
(4) Waiver of period of stay in foreign country
Notwithstanding paragraph (1), an individual who -
(A) is a bona fide resident of, or is present in, a foreign
country for any period,
(B) leaves such foreign country after August 31, 1978 -
(i) during any period during which the Secretary
determines, after consultation with the Secretary of State or
his delegate, that individuals were required to leave such
foreign country because of war, civil unrest, or similar
adverse conditions in such foreign country which precluded
the normal conduct of business by such individuals, and
(ii) before meeting the requirements of such paragraph (1),
and
(C) establishes to the satisfaction of the Secretary that
such individual could reasonably have been expected to have met
such requirements but for the conditions referred to in clause
(i) of subparagraph (B),
shall be treated as a qualified individual with respect to the
period described in subparagraph (A) during which he was a bona
fide resident of, or was present in, the foreign country, and in
applying subsections (b)(2)(A) and (c)(1)(B)(ii) with respect to
such individual, only the days within such period shall be taken
into account.
(5) Test of bona fide residence
If -
(A) an individual who has earned income from sources within a
foreign country submits a statement to the authorities of that
country that he is not a resident of that country, and
(B) such individual is held not subject as a resident of that
country to the income tax of that country by its authorities
with respect to such earnings,
then such individual shall not be considered a bona fide resident
of that country for purposes of paragraph (1)(A).
(6) Denial of double benefits
No deduction or exclusion from gross income under this subtitle
or credit against the tax imposed by this chapter (including any
credit or deduction for the amount of taxes paid or accrued to a
foreign country or possession of the United States) shall be
allowed to the extent such deduction, exclusion, or credit is
properly allocable to or chargeable against amounts excluded from
gross income under subsection (a).
(7) Aggregate benefit cannot exceed foreign earned income
The sum of the amount excluded under subsection (a) and the
amount deducted under subsection (c)(3)(A) for the taxable year
shall not exceed the individual's foreign earned income for such
year.
(8) Limitation on income earned in restricted country
(A) In general
If travel (or any transaction in connection with such travel)
with respect to any foreign country is subject to the
regulations described in subparagraph (B) during any period -
(i) the term "foreign earned income" shall not include any
income from sources within such country attributable to
services performed during such period,
(ii) the term "housing expenses" shall not include any
expenses allocable to such period for housing in such country
or for housing of the spouse or dependents of the taxpayer in
another country while the taxpayer is present in such
country, and
(iii) an individual shall not be treated as a bona fide
resident of, or as present in, a foreign country for any day
during which such individual was present in such country
during such period.
(B) Regulations
For purposes of this paragraph, regulations are described in
this subparagraph if such regulations -
(i) have been adopted pursuant to the Trading With the
Enemy Act (50 U.S.C. App. 1 et seq.), or the International
Emergency Economic Powers Act (50 U.S.C. 1701 et seq.), and
(ii) include provisions generally prohibiting citizens and
residents of the United States from engaging in transactions
related to travel to, from, or within a foreign country.
(C) Exception
Subparagraph (A) shall not apply to any individual during any
period in which such individual's activities are not in
violation of the regulations described in subparagraph (B).
(9) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
section, including regulations providing rules -
(A) for cases where a husband and wife each have earned
income from sources outside the United States, and
(B) for married individuals filing separate returns.
(e) Election
(1) In general
An election under subsection (a) shall apply to the taxable
year for which made and to all subsequent taxable years unless
revoked under paragraph (2).
(2) Revocation
A taxpayer may revoke an election made under paragraph (1) for
any taxable year after the taxable year for which such election
was made. Except with the consent of the Secretary, any taxpayer
who makes such a revocation for any taxable year may not make
another election under this section for any subsequent taxable
year before the 6th taxable year after the taxable year for which
such revocation was made.
(f) Cross references
For administrative and penal provisions relating to the
exclusions provided for in this section, see sections 6001,
6011, 6012(c), and the other provisions of subtitle F.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 289; Pub. L. 85-866, title I,
Sec. 72(b), Sept. 2, 1958, 72 Stat. 1660; Pub. L. 87-834, Sec.
11(a), Oct. 16, 1962, 76 Stat. 1003; Pub. L. 88-272, title II, Sec.
237(a), Feb. 26, 1964, 78 Stat. 128; Pub. L. 89-809, title I, Sec.
105(e)(3), Nov. 13, 1966, 80 Stat. 1567; Pub. L. 94-455, title X,
Sec. 1011(a), (b), title XIX, Secs. 1901(a)(115), 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1610, 1784, 1834; Pub. L. 95-30, title I,
Sec. 102(b)(12), May 23, 1977, 91 Stat. 138; Pub. L. 95-600, title
IV, Sec. 401(b)(4), title VII, Secs. 701(u)(10)(A), 703(e), Nov. 6,
1978, 92 Stat. 2867, 2917, 2939; Pub. L. 95-615, title II, Sec.
202(a)-(e), (g)(1), formerly Sec. 202(a)-(f)(1), Nov. 8, 1978, 92
Stat. 3098-3100, renumbered Sec. 202(a)-(e), (g)(1), and amended
Pub. L. 96-222, title I, Secs. 107(a)(3)(B), 108(a)(1)(A), (C),
(D), Apr. 1, 1980, 94 Stat. 223, 224; Pub. L. 96-595, Sec.
4(a)-(c)(1), Dec. 24, 1980, 94 Stat. 3466, 3467; Pub. L. 97-34,
title I, Sec. 111(a), Aug. 13, 1981, 95 Stat. 190; Pub. L. 97-448,
title I, Sec. 101(c), Jan. 12, 1983, 96 Stat. 2366; Pub. L. 98-369,
div. A, title I, Sec. 17, July 18, 1984, 98 Stat. 505; Pub. L.
99-514, title XII, Sec. 1233(a), (b), Oct. 22, 1986, 100 Stat.
2564; Pub. L. 105-34, title XI, Sec. 1172(a), Aug. 5, 1997, 111
Stat. 988.)
-REFTEXT-
REFERENCES IN TEXT
The Trading With the Enemy Act, referred to in subsec.
(d)(8)(B)(i), is act Oct. 6, 1917, ch. 106, 40 Stat. 411, as
amended, which is classified to sections 1 to 6, 7 to 39, and 41 to
44 of Title 50, Appendix, War and National Defense. For complete
classification of this Act to the Code, see Tables.
The International Emergency Economic Powers Act, referred to in
subsec. (d)(8)(B)(i), is Pub. L. 95-223, title II, Dec. 28, 1977,
91 Stat. 1626, which is classified generally to chapter 35 (Sec.
1701 et seq.) of Title 50, War and National Defense. For complete
classification of this Act to the Code, see Short Title note set
out under section 1701 of Title 50 and Tables.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(2)(A). Pub. L. 105-34, Sec. 1172(a)(1),
substituted "equal to the exclusion amount for the calendar year in
which such taxable year begins" for "of $70,000".
Subsec. (b)(2)(D). Pub. L. 105-34, Sec. 1172(a)(2), added subpar.
(D).
1986 - Subsec. (b)(2)(A). Pub. L. 99-514, Sec. 1233(a), in
amending subpar. (A) generally, substituted "an annual rate of
$70,000" for "the annual rate set forth in the following table for
each day of the taxable year within the applicable period described
in subparagraph (A) or (B) of subsection (d)(1):
"In the case of taxable years
beginning in: The annual rate
is:
1983, 1984, 1985, 1986, or 1987 $80,000
1988 85,000
1989 90,000
1990 and thereafter 95,000."
Subsec. (d)(8), (9). Pub. L. 99-514, Sec. 1233(b), added par. (8)
and redesignated former par. (8) as (9).
1984 - Subsec. (b)(2)(A). Pub. L. 98-369 amended table by
striking out item which set the annual rate at $75,000 for taxable
years beginning in 1982, substituted item setting the annual rate
at $80,000 for taxable years beginning in 1983, 1984, 1985, 1986,
or 1987 for items which had set annual rates of $80,000 for taxable
years beginning in 1983, $85,000 for taxable years beginning in
1984, $90,000 for taxable years beginning in 1985, and $95,000 for
taxable years beginning in 1986 and thereafter, and added items
setting annual rates of $85,000 for taxable years beginning in
1988, $90,000 for taxable years beginning in 1989, and $95,000 for
taxable years beginning in 1990 and thereafter.
1983 - Subsec. (c)(3)(B)(ii). Pub. L. 97-448, Sec. 101(c)(2),
substituted "subsection (a)" for "subsection (a)(1)".
Subsec. (d)(7), (8). Pub. L. 97-448, Sec. 101(c)(1), added par.
(7) and redesignated former par. (7) as (8).
1981 - Pub. L. 97-34 amended section generally, modifying the
eligibility standards of existing law, replacing the existing
system of deduction for excess living costs with an exclusion of a
portion of foreign earned income, and providing for an individual's
election to exclude a portion of his income or to deduct an amount
for housing, based on his housing expenses.
1980 - Pub. L. 96-595 Sec. 4(c)(1), inserted "or from charitable
services" after "camps" in section catchline.
Subsec. (a). Pub. L. 96-595, Sec. 4(a), inserted "or who performs
qualified charitable services in a lesser developed country," after
"hardship area".
Pub. L. 96-222, Sec. 108(a)(1)(C), (D), substituted "a foreign
country or" for "qualified foreign" in par. (2) and, in provisions
following par. (2), substituted "his gross income any deduction,"
for "his gross income" and "other than the deduction allowed by
section 217" for "other than the deductions allowed by sections
217".
Subsec. (c)(1)(A). Pub. L. 96-595, Sec. 4(b)(1), substituted
"Dollar limitations" for "In general" in heading, redesignated
existing provisions as cl. (i), and in cl. (i) as so redesignated,
inserted "Camp residents - In the case of an individual who resides
in a camp located in a hardship area" before "the amount excluded",
and added cls. (ii) and (iii).
Subsec. (c)(1)(D), (E). Pub. L. 96-595, Sec. 4(b)(2), added
subpars. (D) and (E).
1978 - Pub. L. 95-615, Sec. 202(f)(1), substituted "Income earned
by individuals in certain camps" for "Earned income from sources
without the United States" in section catchline.
Subsec. (a). Pub. L. 95-615, Sec. 202(a), in introductory
provisions inserted reference to an individual described in section
913(a) who, because of his employment, resides in a camp located in
a hardship area, in par. (1) substituted reference to amounts
received from sources within a foreign country or countries for
reference to amounts received from sources without the United
States, in par. (2) substituted reference to amounts received from
sources within qualified foreign countries for reference to amounts
received from sources without the United States, and in provisions
following par. (2) struck out "any deductions (other than those
allowed by section 151, relating to personal exemptions)," after
"deduction from his gross income" and inserted ", other than the
deductions allowed by sections 217 (relating to moving expenses)"
after "subsection".
Pub. L. 95-600, Sec. 701(u)(10)(A), inserted provisions setting
forth formula for determining amount of reduction of taxes, and
struck out provisions relating to the credit against taxes.
Subsec. (c)(1)(A). Pub. L. 95-615, Sec. 202(b), substituted "The
amount excluded" for "Except as provided in subparagraphs (B) and
(C), the amount excluded" and "an annual rate of $20,000 for days
during which he resides in a camp" for "an annual rate of $15,000".
Subsec. (c)(1)(B). Pub. L. 95-615, Sec. 202(b), substituted
provisions relating to conditions upon which an individual will be
considered to reside in a camp because of his employment for
provisions which related to the amount excluded from the gross
income of an individual performing qualified charitable services.
Subsec. (c)(1)(C). Pub. L. 95-615, Sec. 202(b), substituted
provisions relating to definition of "hardship area" for provisions
which related to the amount excluded from the gross income of an
individual performing both qualified charitable services and other
services.
Subsec. (c)(1)(D). Pub. L. 95-615, Sec. 202(b), struck out
subpar. (D) which defined "qualified charitable services".
Subsec. (c)(7). Pub. L. 95-615, Sec. 202(c), added par. (7).
Pub. L. 95-600, Sec. 703(e), redesignated former par. (8) as (7).
Such par. (8) was subsequently repealed by section 202(e) of Pub.
L. 95-615 without taking into account the redesignation of par. (8)
as (7) by Pub. L. 95-600. See 1978 Amendment note for subsec.
(c)(8) below.
Subsec. (c)(8). Pub. L. 95-615, Sec. 202(e), struck out par. (8)
which related to the nonexclusion under subsec. (a) of any amount
attributable to services performed in a foreign country or
countries if such amount was received outside of the foreign
country or countries where such services were performed and if one
of the purposes was the avoidance of any tax imposed by such
foreign country or countries on such amount.
Subsec. (d). Pub. L. 95-615, Sec. 202(d)(1), redesignated subsec.
(e) as (d), inserted "for the taxable year" after "section apply",
and struck out provision that an election was applicable to the
taxable year for which made and to all subsequent taxable years.
Former subsec. (d), which related to the computation of tax imposed
by section 1 or section 1201 if an individual earned income which
was excluded from gross income under subsec. (a) and which defined
"net taxable income" and "net excluded earned income", was struck
out.
Subsec. (d)(1). Pub. L. 95-600, Sec. 401(b)(4), struck out
provisions respecting applicability of section 1201 of this title.
Subsecs. (e), (f). Pub. L. 95-615, Sec. 202(d)(1), (2),
redesignated subsec. (f) as (e). Former subsec. (e) redesignated
(d).
1977 - Subsec. (d)(1)(B). Pub. L. 95-30 substituted "on the sum
of (i) the amount of net excluded earned income, and (ii) the zero
bracket amount" for "on the amount of net excluded earned income".
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1011(b)(1),
1906(b)(13)(A), struck out "or his delegate" after "Secretary" in
par. (1), and in provisions following par. (2), inserted "or as a
credit against the tax imposed by this chapter any credit for the
amount of taxes paid or accrued to a foreign country or possession
of the United States, to the extent that such deductions or credit
is" after "personal exemptions)".
Subsec. (b). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
Subsec. (c)(1). Pub. L. 94-455, Sec. 1011(a), reduced the amount
excludable from individual's gross income from $20,000 to $15,000
and $20,000 for employees of charitable organizations, added
special rule to be applied to income from charitable sources and
other sources combined, inserted definition of "qualified
charitable services", and struck out provisions relating to $25,000
exclusion for individual who has been a bona fide resident in a
foreign country for an uninterrupted period of 3 years.
Subsec. (c)(7). Pub. L. 94-455, Sec. 1901(a)(115), struck out
par. (7) relating to certain noncash remuneration from sources
outside the United States.
Subsec. (c)(8). Pub. L. 94-455, Sec. 1011(b)(2), added par. (8).
Subsecs. (d) to (f). Pub. L. 94-455, Sec. 1011(b)(3), added
subsecs. (d) and (e) and redesignated former subsec. (d) as (f).
1966 - Subsec. (d). Pub. L. 89-809 designated existing text as
par. (1) and added par. (2).
1964 - Subsec. (c)(1)(B). Pub. L. 88-272 substituted "$25,000"
for "$35,000".
1962 - Subsec. (a). Pub. L. 87-834 substituted "which constitute
earned income attributable to services performed during such
uninterrupted period" for "if such amounts constitute earned income
(as defined in subsection (b)) attributable to such period" in par.
(1), and "which constitute earned income attributable to services
performed during such 18-month period" for "if such amounts
constitute earned income (as defined in subsection (b))
attributable to such period" in par. (2), inserted provisions in
pars. (1) and (2) requiring the amount excluded under such
paragraphs to be computed by applying the special rules contained
in subsec. (c), and eliminated provisions from par. (2) which
limited the amount excluded under such paragraph to not more than
$20,000 if the 18-month period includes the entire taxable year,
and to not more than an amount which bears the same ratio to
$20,000 as the number of days in the part of the taxable year
within the 18-month period bears to the total number of days in
such year if the 18-month period does not include the entire
taxable year.
Subsecs. (c) and (d). Pub. L. 87-834 added subsec. (c) and
redesignated former subsec. (c) as (d).
1958 - Subsec. (c). Pub. L. 85-866 added subsec. (c).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1172(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1233(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years ending
after Dec. 31, 1983, see section 18(a) of Pub. L. 98-369, set out
as a note under section 48 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 115 of subtitle B (Secs. 111-115) of title I of Pub. L.
97-34 provided that: "The amendments made by this subtitle
[amending this section and sections 37, 43, 62, 63, 105, 119, 410,
879, 1034, 1302, 1303, 1304, 1402, 3401, 6012, and 6091 of this
title and repealing section 913 of this title] (other than section
114 [amending section 208 of Pub. L. 95-615, set out below]) shall
apply with respect to taxable years beginning after December 31,
1981."
EFFECTIVE DATE OF 1980 AMENDMENTS
Section 4(d) of Pub. L. 96-595 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1978."
Amendment by section 107(a)(3)(B) of Pub. L. 96-222 effective,
except as otherwise provided, as if it had been included in the
provisions of the Revenue Act of 1978, Pub. L. 95-600, to which
such amendment relates, see section 201 of Pub. L. 96-222, set out
as a note under section 32 of this title.
Amendment by section 108(a)(1)(A), (C), (D) of Pub. L. 96-222
effective as if included in the Foreign Earned Income Act of 1978,
Pub. L. 95-615, see section 108(a)(2)(A) of Pub. L. 96-222, set out
as a note under section 3 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 401(b)(4) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 401(c) of
Pub. L. 95-600, set out as a note under section 1201 of this title.
Section 701(u)(10)(B) of Pub. L. 95-600, as amended by Pub. L.
96-222, title I, Sec. 107(a)(1)(B), Apr. 1, 1980, 94 Stat. 222,
provided that: "The amendment made by subparagraph (A) [amending
this section] shall apply to taxable years beginning in calendar
year 1978 but only in the case of taxpayers who make an election
under section 209(c) of the Foreign Earned Income Act of 1978
[section 209(c) of Pub. L. 95-615, set out below]."
Amendment by section 703(e) of Pub. L. 95-600 effective on Oct.
4, 1976, see section 703(r) of Pub. L. 95-600, set out as a note
under section 46 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT; ELECTION OF PRIOR LAW
Section 209 of Pub. L. 95-615 provided that:
"(a) General Rule. - Except as provided in subsections (b) and
(c), the amendments made by this title [see section 201(a) of Pub.
L. 95-615, set out as a Short Title of 1978 Amendment note under
section 1 of this title] shall apply to taxable years beginning
after December 31, 1977.
"(b) Wage Withholding. - The amendment made by section 207(a)
[amending section 3401 of this title] shall apply to remuneration
paid after the date of the enactment of this Act. [Nov. 8, 1978].
"(c) Election of Prior Law. -
"(1) A taxpayer may elect not to have the amendments made by
this title [see section 201(a) of Pub. L. 95-615, set out as a
Short Title of 1978 Amendment note under section 1 of this title]
apply with respect to any taxable year beginning after December
31, 1977, and before January 1, 1979.
"(2) An election under this subsection shall be filed with a
taxpayer's timely filed return for the first taxable year
beginning after December 31, 1977."
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 1011(d) of Pub. L. 94-455, as amended by Pub. L. 95-30,
title III, Sec. 302, May 23, 1977, 91 Stat. 152; Pub. L. 95-615,
Sec. 4(a), Nov. 8, 1978, 92 Stat. 3097, provided that: "The
amendments made by this section [amending this section and section
36 of this title] shall apply to taxable years beginning after
December 31, 1977."
Amendment by section 1901(a)(115) of Pub. L. 94-455 applicable
with respect to 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 1964 AMENDMENT
Section 237(b) of Pub. L. 88-272 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1964."
EFFECTIVE DATE OF 1962 AMENDMENT
Section 11(c)(1) of Pub. L. 87-834 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after September 4, 1962, but only with respect
to amounts -
"(A) received after March 12, 1962, which are attributable to
services performed after December 31, 1962, or
"(B) received after December 31, 1962, which are attributable
to services performed on or before December 31, 1962, unless on
March 12, 1962, there existed a right (whether forfeitable or
nonforfeitable) to receive such amounts."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1957, see section 72(c) of Pub. L. 85-866 set out as
a note under section 6012 of this title.
REPEALS
Section 703(e) of Pub. L. 95-600, cited as a credit to this
section, was repealed by Pub. L. 96-222, title I, Sec.
107(a)(3)(B), Apr. 1, 1980, 94 Stat. 223. See 1978 Amendment note
for subsec. (c)(7) of this section set out above.
TREATMENT OF CERTAIN PERSONS IN PANAMA
Section 1232(a) of Pub. L. 99-514 provided that: "Nothing in the
Panama Canal Treaty (or in any agreement implementing such Treaty)
shall be construed as exempting (in whole or in part) any citizen
or resident of the United States from any tax under the Internal
Revenue Code of 1954 or 1986. The preceding sentence shall apply to
all taxable years whether beginning before, on, or after the date
of the enactment of this Act [Oct. 22, 1986] (or in the case of any
tax not imposed with respect to a taxable year, to taxable events
after the date of enactment of this Act.)"
TAXABLE YEARS BEGINNING IN 1977 OR 1978; INDIVIDUALS WHO LEAVE
FOREIGN COUNTRY AFTER AUGUST 31, 1978
Rules similar to the rules of section 913(j)(4) of this title to
apply for the purposes of applying this section for taxable years
beginning in 1977 or 1978 in the case of an individual who leaves a
foreign country after Aug. 31, 1978, see section 1(b) of Pub. L.
96-608, set out as an Effective Date of 1980 Amendment note under
section 913 of this title.
INDIVIDUALS FOR WHOM UNUSED ZERO BRACKET AMOUNT COMPUTATION IS
PROVIDED FOR TAXABLE YEARS BEGINNING IN 1977
Section 4(b) of Pub. L. 95-615, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If for any
taxable year beginning in 1977 -
"(1) an individual is entitled to the benefits of section 911
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], and
"(2) such individual chooses to take to any extent the benefits
of section 901 of such Code,
then such individual shall be treated for such taxable year as an
individual for whom an unused zero bracket amount computation is
provided by section 63(e) of such Code."
REPORTS TO CONGRESSIONAL COMMITTEES; INFORMATION FROM FEDERAL
AGENCIES
Section 208 of Pub. L. 95-615, as amended by Pub. L. 97-34, title
I, Sec. 114, Aug. 13, 1981, 95 Stat. 195; Pub. L. 99-514, Sec. 2,
Oct. 22, 1986, 100 Stat. 2095; Pub. L. 101-508, title XI, Sec.
11833, Nov. 5, 1990, 104 Stat. 1388-560, provided that:
"(a) General Rule. - As soon as practicable after December 31,
1993, and as soon as practicable after the close of each fifth
calendar year thereafter, the Secretary of the Treasury shall
transmit a report to the Committee on Ways and Means of the House
of Representatives and to the Committee on Finance of the Senate on
the operation and effects of sections 911 and 912 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954].
"(b) Information From Federal Agencies. - Each agency of the
Federal Government which pays allowances excludable from gross
income under section 912 of such Code shall keep such records and
furnish to the Secretary of the Treasury such information as he
determines to be necessary to carry out his responsibility under
subsection (a)."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 23, 24, 25A, 25B, 32,
59, 66, 72, 79, 86, 105, 135, 137, 219, 221, 222, 403, 410, 414,
415, 469, 505, 530, 865, 879, 988, 1400C, 1402, 3401, 4980B, 6012,
6091, 6103, 7701 of this title; title 22 section 3310; title 29
section 1322; title 42 sections 411, 604, 1395r.
-End-
-CITE-
26 USC Sec. 912 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart B - Earned Income of Citizens or Residents of United States
-HEAD-
Sec. 912. Exemption for certain allowances
-STATUTE-
The following items shall not be included in gross income, and
shall be exempt from taxation under this subtitle:
(1) Foreign areas allowances
In the case of civilian officers and employees of the
Government of the United States, amounts received as allowances
or otherwise (but not amounts received as post differentials)
under -
(A) chapter 9 of title I of the Foreign Service Act of 1980,
(B) section 4 of the Central Intelligence Agency Act of 1949,
as amended (50 U.S.C., sec. 403e),
(C) title II of the Overseas Differentials and Allowances
Act, or
(D) subsection (e) or (f) of the first section of the
Administrative Expenses Act of 1946, as amended, or section 22
of such Act.
(2) Cost-of-living allowances
In the case of civilian officers or employees of the Government
of the United States stationed outside the continental United
States (other than Alaska), amounts (other than amounts received
under title II of the Overseas Differentials and Allowances Act)
received as cost-of-living allowances in accordance with
regulations approved by the President (or in the case of judicial
officers or employees of the United States, in accordance with
rules similar to such regulations).
(3) Peace Corps allowances
In the case of an individual who is a volunteer or volunteer
leader within the meaning of the Peace Corps Act and members of
his family, amounts received as allowances under section 5 or 6
of the Peace Corps Act other than amounts received as -
(A) termination payments under section 5(c) or section 6(1)
of such Act,
(B) leave allowances,
(C) if such individual is a volunteer leader training in the
United States, allowances to members of his family, and
(D) such portion of living allowances as the President may
determine under the Peace Corps Act as constituting basic
compensation.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 290; Pub. L. 86-707, title V,
Sec. 523(a), Sept. 6, 1960, 74 Stat. 802; Pub. L. 87-293, title II,
Sec. 201(a), Sept. 22, 1961, 75 Stat. 625; Pub. L. 96-465, title
II, Sec. 2206(e)(3), Oct. 17, 1980, 94 Stat. 2163; Pub. L. 100-647,
title VI, Sec. 6137(a), Nov. 10, 1988, 102 Stat. 3723.)
-REFTEXT-
REFERENCES IN TEXT
The Foreign Service Act of 1980, referred to in par. (1)(A), is
Pub. L. 96-465, Oct. 17, 1980, 94 Stat. 2071, as amended. Chapter 9
of title I of the Foreign Service Act of 1980 is classified
generally to subchapter IX (Sec. 4081 et seq.) of chapter 52 of
Title 22, Foreign Relations and Intercourse. For complete
classification of this Act to the Code, see Short Title note set
out under section 3901 of Title 22 and Tables.
Title II of the Overseas Differentials and Allowances Act,
referred to in pars. (1)(C) and (2), was title II of Pub. L.
86-707, Sept. 6, 1960, 74 Stat. 793, which was repealed and
reenacted as sections 5922 to 5925 of Title 5, Government
Organization and Employees, by Pub. L. 89-554, Sept. 6, 1966, 80
Stat. 378.
Sections 1(e) and (f) and 22 of the Administrative Expenses Act
of 1946, referred to in par. (1)(D), were repealed and the
provisions thereof reenacted as sections 5726(b), 5727(b) to (e),
and 5913 of Title 5, by Pub. L. 89-554, Sept. 6, 1966, 80 Stat.
378.
The Peace Corps Act, referred to in par. (3), is Pub. L. 87-293,
Sept. 22, 1961, 75 Stat. 612, as amended, which is classified
principally to chapter 34 (Sec. 2501 et seq.) of Title 22, Foreign
Relations and Intercourse. Sections 5 and 6 of that act are
classified to sections 2504 and 2505 of Title 22. For complete
classification of this act to the Code, see Short Title note set
out under section 2501 of Title 22 and Tables.
-MISC1-
AMENDMENTS
1988 - Par. (2). Pub. L. 100-647 inserted "(or in the case of
judicial officers or employees of the United States, in accordance
with rules similar to such regulations)" after "President".
1980 - Par. (1)(A). Pub. L. 96-465 substituted reference to
chapter 9 of title I of the Foreign Service Act of 1980 for
reference to title IX of the Foreign Service Act of 1946.
1961 - Par. (3). Pub. L. 87-293 added par. (3).
1960 - Pub. L. 86-707 exempted foreign areas allowances received
under section 4 of the Central Intelligence Agency Act of 1949,
title II of the Overseas Differentials and Allowances Act,
subsection (e) or (f) of the first section of the Administrative
Expenses Act of 1946, or section 22 of such Act, provided that
amounts received as post differentials shall not be exempt and in
provisions relating to cost-of-living allowances excluded Alaska
from term "continental United States" and amounts received under
title II of the Overseas Differentials and Allowances Act.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6137(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
allowances received after October 12, 1987, in taxable years ending
after such date."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-465 effective Feb. 15, 1981, except as
otherwise provided, see section 2403 of Pub. L. 96-465, set out as
an Effective Date note under section 3901 of Title 22, Foreign
Relations and Intercourse.
EFFECTIVE DATE OF 1961 AMENDMENTS
Section 201(d) of Pub. L. 87-293 provided that: "The amendments
made by subsections (a) and (b) of this section [amending this
section and section 1303 of this title] shall apply with respect to
taxable years ending after March 1, 1961. The amendment made by
subsection (c) [amending section 3401 of this title] shall apply
with respect to remuneration paid after the date of the enactment
of this Act [Sept. 22, 1961]."
[Section 201(d) of Pub. L. 87-293 was repealed by Pub. L. 89-572,
Sec. 5(a), Sept. 13, 1966, 80 Stat. 765. Such repeal not deemed to
affect amendments contained in such provisions, see sections 5(b)
of Pub. L. 89-572, set out as a note under former section 2515 of
Title 22, Foreign Relations and Intercourse.]
EFFECTIVE DATE OF 1960 AMENDMENT
Section 523(b) of Pub. L. 86-707, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Paragraphs
(1) and (2) of section 912 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], as amended by subsection (a) of this
section, shall apply only with respect to amounts received on or
after the date of the enactment of this Act [Sept. 6, 1960] in
taxable years ending on or after such date."
REPEALS; AMENDMENTS AND APPLICATION OF AMENDMENTS UNAFFECTED
Section 201(a) of Pub. L. 87-293, cited as a credit to this
section, was repealed by Pub. L. 89-572, Sec. 5(a), Sept. 13, 1966,
80 Stat. 765. Such repeal not deemed to affect amendments to this
section contained in such provisions, and continuation in full
force and effect until modified by appropriate authority of all
determinations, authorization, regulations, orders, contracts,
agreements, and other actions issued undertaken, or entered into
under authority of the repealed provisions, see section 5(b) of
Pub. L. 89-572, set out as a note under former section 2515 of
Title 22, Foreign Relations and Intercourse.
-TRANS-
DELEGATION OF FUNCTIONS
Function of determining the portion of living allowances
constituting basic compensation for Peace Corps volunteers or
volunteer leaders under par. (3) of this section delegated by
President to Director of Peace Corps to be performed in
consultation with the Secretary of the Treasury, see section 1-104
of Ex. Ord. No. 12137, May 16, 1979, 44 F.R. 29023, set out as a
note under section 2501 of Title 22, Foreign Relations and
Intercourse.
Authority of President under par. (2) of this section delegated
to Secretary of Defense with respect to military departments, and
to Secretary of Transportation with respect to Coast Guard when it
is not operating as a service in the Navy, concerning civilian
employees of nonappropriated fund instrumentalities of the armed
forces, see section 201 of Ex. Ord. No. 11137, Jan. 7, 1964, as
amended, set out as a note under section 5921 of Title 5,
Government Organization and Employees.
-MISC2-
TREATMENT OF EMPLOYEES OF PANAMA CANAL COMMISSION AND DEPARTMENT OF
DEFENSE
Pub. L. 99-514, title XII, Sec. 1232(b), Oct. 22, 1986, 100 Stat.
2564, provided that: "Employees of the Panama Canal Commission and
civilian employees of the Defense Department of the United States
stationed in Panama may exclude from gross income allowances which
are comparable to the allowances excludable under section 912(1) of
the Internal Revenue Code of 1986 by employees of the State
Department of the United States stationed in Panama. The preceding
sentence shall apply to taxable years beginning after December 31,
1986."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 6011 of this title; title
22 section 3310.
-End-
-CITE-
26 USC Sec. 913 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart B - Earned Income of Citizens or Residents of United States
-HEAD-
[Sec. 913. Repealed. Pub. L. 97-34, title I, Sec. 112(a), Aug. 13,
1981, 95 Stat. 194]
-MISC1-
Section, added Pub. L. 95-615, title II, Sec. 203(a), Nov. 8,
1978, 92 Stat. 3100; amended Pub. L. 96-222, title I, Sec.
108(a)(1)(B), (F), Apr. 1, 1980. 94 Stat. 223, 225; Pub. L. 96-608,
Sec. 1(a), Dec. 28, 1980, 94 Stat. 3550, related to a deduction for
certain expenses of living abroad.
EFFECTIVE DATE OF REPEAL
Repeal applicable with respect to taxable years beginning after
Dec. 31, 1981, see section 115 of Pub. L. 97-34, set out as an
Effective Date of 1981 Amendment note under section 911 of this
title.
-End-
-CITE-
26 USC [Subpart C - Repealed] 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
[Subpart C - Repealed]
-HEAD-
[SUBPART C - REPEALED]
-End-
-CITE-
26 USC Secs. 921 to 927 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
[Subpart C - Repealed]
-HEAD-
[Secs. 921 to 927. Repealed. Pub. L. 106-519, Sec. 2, Nov. 15,
2000, 114 Stat. 2423]
-MISC1-
Section 921, added Pub. L. 98-369, div. A, title VIII, Sec.
801(a), July 18, 1984, 98 Stat. 985, provided for exclusion from
gross income of exempt foreign trade income.
A prior section 921, acts Aug. 16, 1954, ch. 736, 68A Stat. 290;
Oct. 4, 1976, Pub. L. 94-455, title XIX, Sec. 1901(a)(116), 90
Stat. 1784, defined Western Hemisphere trade corporation, prior to
repeal by Pub. L. 94-455, title X, Sec. 1052(b), Oct. 4, 1976, 90
Stat. 1648, effective with respect to taxable years beginning after
Dec. 31, 1979.
Section 922, added Pub. L. 98-369, div. A, title VIII, Sec.
801(a), July 18, 1984, 98 Stat. 986, defined FSC's.
A prior section 922, acts Aug. 16, 1954, ch. 736, 68A Stat. 291;
Dec. 10, 1971, Pub. L. 92-178, title V, Sec. 502(c), 85 Stat. 550;
Oct. 4, 1976, Pub. L. 94-455, title X, Sec. 1052(a), (c)(1), 90
Stat. 1647, 1648; Nov. 6, 1978, Pub. L. 95-600, title III, Sec.
301(b)(15), 92 Stat. 2822, related to a special deduction for a
Western Hemisphere trade corporation, prior to repeal by Pub. L.
94-455, title X, Sec. 1052(b), Oct. 4, 1976, 90 Stat. 1648,
effective with respect to taxable years beginning after Dec. 31,
1979.
Section 923, added Pub. L. 98-369, div. A, title VIII, Sec.
801(a), July 18, 1984, 98 Stat. 986; amended Pub. L. 99-514, title
XVIII, Sec. 1876(b)(3), Oct. 22, 1986, 100 Stat. 2898, related to
exempt foreign trade income.
Section 924, added Pub. L. 98-369, div. A, title VIII, Sec.
801(a), July 18, 1984, 98 Stat. 987; amended Pub. L. 99-514, title
XVIII, Sec. 1876(e)(2), (l), Oct. 22, 1986, 100 Stat. 2899, 2901,
related to foreign trading gross receipts.
Section 925, added Pub. L. 98-369, div. A, title VIII, Sec.
801(a), July 18, 1984, 98 Stat. 990, related to transfer pricing
rules.
Section 926, added Pub. L. 98-369, div. A, title VIII, Sec.
801(a), July 18, 1984, 98 Stat. 991, related to distributions to
shareholders.
Section 927, added Pub. L. 98-369, div. A, title VIII, Sec.
801(a), July 18, 1984, 98 Stat. 991; amended Pub. L. 99-514, title
XVIII, Sec. 1876(a)(1), (e)(1), (f)(1), (p)(5), Oct. 22, 1986, 100
Stat. 2897, 2899, 2902; Pub. L. 100-647, title I, Sec.
1012(bb)(8)(A), Nov. 10, 1988, 102 Stat. 3536; Pub. L. 101-508,
title XI, Sec. 11704(a)(10), Nov. 5, 1990, 104 Stat. 1388-518; Pub.
L. 103-66, title XIII, Sec. 13239(a), Aug. 10, 1993, 107 Stat. 509;
Pub. L. 105-34, title XI, Sec. 1171(a), Aug. 5, 1997, 111 Stat.
987, related to other definitions and special rules.
EFFECTIVE DATE OF REPEAL
Repeal applicable to transactions after Sept. 30, 2000, with
special rules relating to existing foreign sales corporations, see
section 5 of Pub. L. 106-519, set out as an Effective Date note
under section 941 of this title.
-End-
-CITE-
26 USC Subpart D - Possessions of the United States 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart D - Possessions of the United States
-HEAD-
SUBPART D - POSSESSIONS OF THE UNITED STATES
-MISC1-
Sec.
931. Income from sources within Guam, American Samoa, or
the Northern Mariana Islands.
932. Coordination of United States and Virgin Islands
income taxes.
933. Income from sources within Puerto Rico.
934. Limitation on reduction in income tax liability
incurred to the Virgin Islands.
[934A, 935. Repealed.]
936. Puerto Rico and possession tax credit.(!1)
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Secs. 1272(d)(12), 1274(d),
1275(c)(8), Oct. 22, 1986, 100 Stat. 2595, 2598, 2599, substituted
"Guam, American Samoa, or the Northern Mariana Islands" for
"possessions of the United States" in item 931, added item 932, and
struck out former item 932 "Citizens of possessions of the United
States", item 934A "Income tax rate on Virgin Islands source
income" and item 935 "Coordination of United States and Guam
individual income taxes".
1983 - Pub. L. 97-455, Sec. 1(d)(1), Jan. 12, 1983, 96 Stat.
2498, added item 934A.
1972 - Pub. L. 92-606, Sec. 1(f)(5), Oct. 31, 1972, 86 Stat.
1497, added item 935.
1960 - Pub. L. 86-779, Sec. 4(a)(2), Sept. 14, 1960, 74 Stat.
999, added item 934.
-FOOTNOTE-
(!1) Editorially supplied. Section 936 added by Pub. L. 94-455
without corresponding amendment of subpart analysis.
-End-
-CITE-
26 USC Sec. 931 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart D - Possessions of the United States
-HEAD-
Sec. 931. Income from sources within Guam, American Samoa, or the
Northern Mariana Islands
-STATUTE-
(a) General rule
In the case of an individual who is a bona fide resident of a
specified possession during the entire taxable year, gross income
shall not include -
(1) income derived from sources within any specified
possession, and
(2) income effectively connected with the conduct of a trade or
business by such individual within any specified possession.
(b) Deductions, etc. allocable to excluded amounts not allowable
An individual shall not be allowed -
(1) as a deduction from gross income any deductions (other than
the deduction under section 151, relating to personal
exemptions), or
(2) any credit,
properly allocable or chargeable against amounts excluded from
gross income under this section.
(c) Specified possession
For purposes of this section, the term "specified possession"
means Guam, American Samoa, and the Northern Mariana Islands.
(d) Special rules
For purposes of this section -
(1) Employees of the United States
Amounts paid for services performed as an employee of the
United States (or any agency thereof) shall be treated as not
described in paragraph (1) or (2) of subsection (a).
(2) Determination of source, etc.
The determination as to whether income is described in
paragraph (1) or (2) of subsection (a) shall be made under
regulations prescribed by the Secretary.
(3) Determination of residency
For purposes of this section and section 876, the determination
of whether an individual is a bona fide resident of Guam,
American Samoa, or the Northern Mariana Islands shall be made
under regulations prescribed by the Secretary.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 291; Pub. L. 89-809, title I,
Sec. 107(a), Nov. 13, 1966, 80 Stat. 1571; Pub. L. 92-178, title V,
Sec. 502(d), Dec. 10, 1971, 85 Stat. 550; Pub. L. 92-606, Sec.
1(f)(1), Oct. 31, 1972, 86 Stat. 1497; Pub. L. 94-455, title X,
Sec. 1051(c), title XIX, Secs. 1901(a)(117), 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1645, 1784, 1834; Pub. L. 95-30, title I, Sec.
101(d)(12), May 23, 1977, 91 Stat. 134; Pub. L. 98-369, div. A,
title VII, Sec. 711(c)(2)(A)(iv), July 18, 1984, 98 Stat. 945; Pub.
L. 99-514, title XII, Sec. 1272(a), Oct. 22, 1986, 100 Stat. 2593.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 amended section generally, substituting
provisions relating to income from sources within Guam, American
Samoa, or the Northern Mariana Islands, for former provisions
relating to income from sources within possessions of the United
States, which had declared in: subsec. (a), general rule as to
gross income, including requirements relating to 3-year period and
trade or business; subsec. (b), rule as to amounts received in
United States; subsec. (c), definition of "possession of the United
States"; subsec. (d), general rule allowing deductions only to
extent connected with income from sources within United States, and
specific exceptions to limitations of general rule; subsec. (e),
deduction for personal exemption; subsec. (f), allowance of
deductions and credits; subsec. (g), foreign tax credit; subsec.
(h), provisions relating to employees of United States.
1984 - Subsec. (d)(2)(B). Pub. L. 98-369 substituted "for losses"
for ", for losses of property not connected with the trade or
business if arising from certain casualties or theft,".
1977 - Subsec. (d)(3). Pub. L. 95-30 struck out par. (3) which
made a cross reference to section 142(b)(2) for disallowance of the
standard deduction.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1051(c)(1), struck out
all references to domestic corporations and made subsection
applicable only to individual citizens.
Subsec. (c). Pub. L. 94-455, Sec. 1051(c)(2), substituted
"Commonwealth of Puerto Rico, the Virgin Islands of the United
States, or Guam" for "Virgin Islands of the United States, and such
term when used with respect to citizens of the United States does
not include Puerto Rico or Guam" after "does not include the".
Subsec. (d)(1). Pub. L. 94-455, Secs. 1051(c)(3), 1906(b)(13)(A),
substituted "a citizen of the United States" for "persons" after
"in the case of" and struck out "or his delegate" after
"Secretary".
Subsec. (f). Pub. L. 94-455, Secs. 1051(c)(3), 1906(b)(13)(A),
substituted "A citizen of the United States" for "Persons" after
"Allowance of deductions and credits" and struck out in two places
"or his delegate" after "Secretary".
Subsecs. (h), (i). Pub. L. 94-455, Sec. 1901(a)(117),
redesignated subsec. (i) as (h). Former subsec. (h), relating to
the status of a citizen of the United States who has been interned
by the enemy, was struck out.
1972 - Subsec. (c). Pub. L. 92-606 substituted "Puerto Rico or
Guam" for "Puerto Rico".
1971 - Subsec. (a). Pub. L. 92-178 provided for non-application
of section in the case of a corporation for a taxable year for
which it is a DISC or in which it owns at any time stock in a DISC
or former DISC.
1966 - Subsec (d). Pub. L. 89-809 made applicable to United
States citizens and domestic corporations engaged in trade or
business in possessions, who qualify for the special tax treatment
of income qualifying for the exclusion relating to income from
United States possessions, provisions which allow deductions to
nonresident aliens or foreign corporations engaged in trade or
business in the United States by allowing deductions only where
they are allocable to income effectively connected with the trade
or business in the United States and by spelling out the exceptions
allowing deductions whether or not connected with income from
sources within the United States in the case of losses not
connected with the trade or business but incurred in transactions
entered into for profit, casualty losses, and charitable
contributions.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1277 of subtitle G (Secs. 1271-1277) of title XII of Pub.
L. 99-514, as amended by Pub. L. 100-647, title I, Sec. 1012(z),
Nov. 10, 1988, 102 Stat. 3530, provided that:
"(a) In General. - Except as otherwise provided in this section,
the amendments made by this subtitle [enacting section 932 of this
title, amending this section and sections 28, 32, 48, 63, 153, 246,
338, 864, 876, 881, 933, 934, 936, 957, 1402, 1442, 3401, 6091,
7651, 7654, and 7655 of this title, repealing sections 932, 934A,
and 935 of this title, and enacting provisions set out as notes
under this section and section 932 of this title] shall apply to
taxable years beginning after December 31, 1986.
"(b) Special Rule for Guam, American Samoa, and the Northern
Mariana Islands. - The amendments made by this subtitle shall apply
with respect to Guam, American Samoa, or the Northern Mariana
Islands (and to residents thereof and corporations created or
organized therein) only if (and so long as) an implementing
agreement under section 1271 [set out below] is in effect between
the United States and such possession.
"(c) Special Rules for the Virgin Islands. -
"(1) In general. - The amendments made by section 1275(c)
[amending sections 28, 48, 338, 864, and 934 of this title and
repealing section 934A of this title] shall apply with respect to
the Virgin Islands (and residents thereof and corporations
created or organized therein) only if (and so long as) an
implementing agreement is in effect between the United States and
the Virgin Islands with respect to the establishment of rules
under which the evasion or avoidance of United States income tax
shall not be permitted or facilitated by such possession. Any
such implementing agreement shall be executed on behalf of the
United States by the Secretary of the Treasury, after
consultation with the Secretary of the Interior.
"(2) Section 1275(b). -
"(A) In general. - The amendment made by section 1275(b)
[amending section 7651 of this title] shall apply with respect
to -
"(i) any taxable year beginning after December 31, 1986,
and
"(ii) any pre-1987 open year.
"(B) Special rules. - In the case of any pre-1987 open year -
"(i) the amendment made by section 1275(b) shall not apply
to income from sources in the Virgin Islands or income
effectively connected with the conduct of a trade or business
in the Virgin Islands, and
"(ii) the taxpayer shall be allowed a credit -
"(I) against any additional tax imposed by subtitle A of the
Internal Revenue Code of 1954 [now 1986] (by reason of the
amendment made by section 1275(b)) on income not described in
clause (i),
"(II) for any tax paid to the Virgin Islands before the date
of the enactment of this Act [Oct. 22, 1986] and attributable
to such income.
For purposes of clause (ii)(II), any tax paid before January
1, 1987, pursuant to a process in effect before August 16,
1986, shall be treated as paid before the date of the
enactment of this Act.
"(C) Pre-1987 open year. - For purposes of this paragraph,
the term 'pre-1987 open year' means any taxable year beginning
before January 1, 1987, if on the date of the enactment of this
Act [Oct. 22, 1986] the assessment of a deficiency of income
tax for such taxable year is not barred by any law or rule of
law.
"(D) Exception. - In the case of any pre-1987 open year, the
amendment made by section 1275(b) shall not apply to any
domestic corporation if -
"(i) during the fiscal year which ended May 31, 1986, such
corporation was actively engaged directly or through a
subsidiary in the conduct of a trade or business in the
Virgin Islands and such trade or business consists of
business related to marine activities, and
"(ii) such corporation was incorporated on March 31, 1983,
in Delaware.
"(E) Exception for certain transactions. -
"(i) In general. - In the case of any pre-1987 open year,
the amendment made by section 1275(b) shall not apply to any
income derived from transactions described in clause (ii) by
1 or more corporations which were formed in Delaware on or
about March 6, 1981, and which have owned 1 or more office
buildings in St. Thomas, United States Virgin Islands, for at
least 5 years before the date of the enactment of this Act
[Oct. 22, 1986].
"(ii) Description of transactions. - The transactions
described in this clause are -
"(I) the redemptions of limited partnership interests for cash
and property described in an agreement (as amended) dated
March 12, 1981,
"(II) the subsequent disposition of the properties distributed
in such redemptions, and
"(III) interest earned before January 1, 1987, on bank
deposits of proceeds received from such redemptions to the
extent such deposits are located in the United States Virgin
Islands.
"(iii) Limitation. - The aggregate reduction in tax by
reason of this subparagraph shall not exceed $8,312,000. If
the taxes which would be payable as the result of the
application of the amendment made by section 1275(b) to
pre-1987 open years exceeds the limitation of the preceding
sentence, such excess shall be treated as attributable to
income received in taxable years in reverse chronological
order.
"(d) Report on Implementing Agreements. - If, during the 1-year
period beginning on the date of the enactment of this Act [Oct. 22,
1986], any implementing agreement described in subsection (b) or
(c) is not executed, the Secretary of the Treasury or his delegate
shall report to the Committee on Finance of the United States
Senate, the Committee on Ways and Means, and the Committee on
Interior and Insular Affairs [now Committee on Natural Resources]
of the House of Representatives with respect to -
"(1) the status of such negotiations, and
"(2) the reason why such agreement has not been executed.
"(e) Treatment of Certain United States Persons. - Except as
otherwise provided in regulations prescribed by the Secretary of
the Treasury or his delegate, if a United States person becomes a
resident of Guam, American Samoa, or the Northern Mariana Islands,
the rules of section 877(c) of the Internal Revenue Code of 1954
[now 1986] shall apply to such person during the 10-year period
beginning when such person became such a resident. Notwithstanding
subsection (b), the preceding sentence shall apply to dispositions
after December 31, 1985, in taxable years ending after such date.
"(f) Exemption From Withholding. - Notwithstanding subsection
(b), the modification of section 884 of the Internal Revenue Code
of 1986 by reason of the amendment to section 881 of such Code by
section 1273(b)(1) of this Act shall apply to taxable years
beginning after December 31, 1986."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 711(c)(2)(A)(v) of Pub. L. 98-369,
set out as a note under section 165 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1051(c) of Pub. L. 94-455 applicable with
respect to taxable years beginning after Dec. 31, 1975, with
certain exceptions, see section 1051(i) of Pub. L. 94-455, set out
as a note under section 27 of this title.
Amendment by section 1901(a)(117) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1972 AMENDMENT
Section 2 of Pub. L. 92-606 provided in part that: "The
amendments made by section 1 [enacting sections 935 and 6688 of
this title, amending this section, sections 932, 7654, and 7701 of
this title, and section 1421i of Title 48, Territories and Insular
Possessions, and enacting provisions set out as notes under
sections 881 and 1442 of this title] (other than section 1(e))
[amending sections 881 and 1442 of this title] shall apply with
respect to taxable years beginning after December 31, 1972."
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by 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 1966 AMENDMENT
Section 107(b) of Pub. L. 89-809 provided that: "The amendment
made by this section [amending this section] shall apply with
respect to taxable years beginning after December 31, 1966."
AUTHORITY OF GUAM, AMERICAN SAMOA, AND THE NORTHERN MARIANA ISLANDS
TO ENACT REVENUE LAWS
Section 1271 of Pub. L. 99-514 provided that:
"(a) In General. - Except as provided in subsection (b), nothing
in the laws of the United States shall prevent Guam, American
Samoa, or the Northern Mariana Islands from enacting tax laws
(which shall apply in lieu of the mirror system) with respect to
income -
"(1) from sources within, or effectively connected with the
conduct of a trade or business within, any such possession, or
"(2) received or accrued by any resident of such possession.
"(b) Agreements To Alleviate Certain Problems Relating to Tax
Administration. - Subsection (a) shall apply to Guam, American
Samoa, or the Northern Mariana Islands only if (and so long as) an
implementing agreement is in effect between the United States and
such possession with respect to -
"(1) the elimination of double taxation involving taxation by
such possession and taxation by the United States,
"(2) the establishment of rules under which the evasion or
avoidance of United States income tax shall not be permitted or
facilitated by such possession,
"(3) the exchange of information between such possession and
the United States for purposes of tax administration, and
"(4) the resolution of other problems arising in connection
with the administration of the tax laws of such possession or the
United States.
Any such implementing agreement shall be executed on behalf of the
United States by the Secretary of the Treasury after consultation
with the Secretary of the Interior.
"(c) Revenues Not To Decrease. - The total amount of the revenue
received by any possession referred to in subsection (a) pursuant
to its tax laws during the implementation year and each of the 4
fiscal years thereafter shall not be less than the revenue
(adjusted for inflation) which was received by such possession
pursuant to tax laws for its last fiscal year before the
implementation year.
"(d) Nondiscriminatory Treatment Required. - Nothing in any tax
law of a possession referred to in subsection (a) may discriminate
against any United States person or any resident (corporate or
otherwise) of any other possession.
"(e) Enforcement. -
"(1) In general. - If the Secretary of the Treasury (after
consultation with the Secretary of the Interior) determines that
any possession has failed to comply with subsection (c) or (d),
the Secretary of the Treasury shall so notify the Governor of
such possession in writing. If such possession does not comply
with subsection (c) or (d) (as the case may be) within 90 days of
such notification, the Secretary of the Treasury shall notify the
Congress of such noncompliance. Unless the Congress by law
provides otherwise, the mirror system of taxation shall be
reinstated in such possession and shall be in full force and
effect for taxable years beginning after such notification to the
Congress.
"(2) Special rule for revenue requirements. - If the failure to
comply with subsection (c) is for good cause and does not
jeopardize the fiscal integrity of the possession, the Secretary
may waive the requirements of subsection (c) for such period as
he determines appropriate.
"(f) Definitions and Special Rules. -
"(1) Implementation year. - For purposes of this section, the
term "implementation year" means the 1st fiscal year of the
possession in which the tax laws authorized by subsection (a)
take effect.
"(2) Mirror system. - For purposes of this section, the mirror
system of taxation consists of the provisions of law (in effect
on the day before the date of the enactment of this Act [Oct. 22,
1986]) which make the provisions of the income tax laws of the
United States (as in effect from time to time) in effect in a
possession of the United States.
"(3) Special rule for northern mariana islands. -
Notwithstanding the provisions of the last clause of section
601(a) of Public Law 94-241 [48 U.S.C. 1801 note], the
Commonwealth of the Northern Mariana Islands may elect to
continue its mirror system of taxation without regard to whether
Guam enacts tax laws under the authority provided in subsection
(a)."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 23, 24, 25A, 25B, 86,
135, 137, 168, 221, 222, 530, 865, 876, 901, 936, 1302, 1400C,
1402, 1504, 6091, 6103, 7654, 7655 of this title; title 42 sections
411, 1395r; title 48 section 1421i.
-End-
-CITE-
26 USC Sec. 932 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart D - Possessions of the United States
-HEAD-
Sec. 932. Coordination of United States and Virgin Islands income
taxes
-STATUTE-
(a) Treatment of United States residents
(1) Application of subsection
This subsection shall apply to an individual for the taxable
year if -
(A) such individual -
(i) is a citizen or resident of the United States (other
than a bona fide resident of the Virgin Islands at the close
of the taxable year), and
(ii) has income derived from sources within the Virgin
Islands, or effectively connected with the conduct of a trade
or business within such possession, for the taxable year, or
(B) such individual files a joint return for the taxable year
with an individual described in subparagraph (A).
(2) Filing requirement
Each individual to whom this subsection applies for the taxable
year shall file his income tax return for the taxable year with
both the United States and the Virgin Islands.
(3) Extent of income tax liability
In the case of an individual to whom this subsection applies in
a taxable year for purposes of so much of this title (other than
this section and section 7654) as relates to the taxes imposed by
this chapter, the United States shall be treated as including the
Virgin Islands.
(b) Portion of United States tax liability payable to the Virgin
Islands
(1) In general
Each individual to whom subsection (a) applies for the taxable
year shall pay the applicable percentage of the taxes imposed by
this chapter for such taxable year (determined without regard to
paragraph (3)) to the Virgin Islands.
(2) Applicable percentage
(A) In general
For purposes of paragraph (1), the term "applicable
percentage" means the percentage which Virgin Islands adjusted
gross income bears to adjusted gross income.
(B) Virgin Islands adjusted gross income
For purposes of subparagraph (A), the term "Virgin Islands
adjusted gross income" means adjusted gross income determined
by taking into account only income derived from sources within
the Virgin Islands and deductions properly apportioned or
allocable thereto.
(3) Amounts paid allowed as credit
There shall be allowed as a credit against the tax imposed by
this chapter for the taxable year an amount equal to the taxes
required to be paid to the Virgin Islands under paragraph (1)
which are so paid.
(c) Treatment of Virgin Islands residents
(1) Application of subsection
This subsection shall apply to an individual for the taxable
year if -
(A) such individual is a bona fide resident of the Virgin
Islands at the close of the taxable year, or
(B) such individual files a joint return for the taxable year
with an individual described in subparagraph (A).
(2) Filing requirement
Each individual to whom this subsection applies for the taxable
year shall file an income tax return for the taxable year with
the Virgin Islands.
(3) Extent of income tax liability
In the case of an individual to whom this subsection applies in
a taxable year for purposes of so much of this title (other than
this section and section 7654) as relates to the taxes imposed by
this chapter, the Virgin Islands shall be treated as including
the United States.
(4) Residents of the Virgin Islands
In the case of an individual -
(A) who is a bona fide resident of the Virgin Islands at the
close of the taxable year,
(B) who, on his return of income tax to the Virgin Islands,
reports income from all sources and identifies the source of
each item shown on such return, and
(C) who fully pays his tax liability referred to in section
934(a) to the Virgin Islands with respect to such income,
for purposes of calculating income tax liability to the United
States, gross income shall not include any amount included in
gross income on such return, and allocable deductions and credits
shall not be taken into account.
(d) Special rule for joint returns
In the case of a joint return, this section shall be applied on
the basis of the residence of the spouse who has the greater
adjusted gross income (determined without regard to community
property laws) for the taxable year.
(e) Special rule for applying section to tax imposed in Virgin
Islands
In applying this section for purposes of determining income tax
liability incurred to the Virgin Islands, the provisions of this
section shall not be affected by the provisions of Federal law
referred to in section 934(a).
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1274(a), Oct. 22, 1986, 100
Stat. 2596; amended Pub. L. 100-647, title I, Sec. 1012(w)(1)-(3),
Nov. 10, 1988, 102 Stat. 3530.)
-MISC1-
PRIOR PROVISIONS
A prior section 932, acts Aug. 16, 1954, ch. 736, 68A Stat. 292;
Nov. 13, 1966, Pub. L. 89-809, title I, Sec. 103(m), 80 Stat. 1554;
Oct. 31, 1972, Pub. L. 92-606, Sec. 1(f)(2), (3), 86 Stat. 1497;
Apr. 7, 1986, Pub. L. 99-272, title XII, Sec. 12103(a), 100 Stat.
285, related to income taxation of citizens of possessions of the
United States, prior to repeal by Pub. L. 99-514, title XII, Sec.
1272(d)(1), Oct. 22, 1986, 100 Stat. 2594.
AMENDMENTS
1988 - Subsec. (c)(2). Pub. L. 100-647, Sec. 1012(w)(3),
substituted "an income tax return" for "his income tax return".
Subsec. (c)(4). Pub. L. 100-647, Sec. 1012(w)(2), amended par.
(4) generally. Prior to amendment, par. (4) read as follows: "In
the case of an individual who is a bona fide resident of the Virgin
Islands at the close of the taxable year and who, on his return of
income tax to the Virgin Islands, reports income from all sources
and identifies the source of each item shown on such return, for
purposes of calculating income tax liability to the United States
gross income shall not include any amount included in gross income
on such return."
Subsec. (e). Pub. L. 100-647, Sec. 1012(w)(1), substituted
current heading for "Section not to apply to tax imposed in Virgin
Islands" and amended text generally. Prior to amendment, text read
as follows: "This section shall not apply for purposes of
determining income tax liability incurred to the Virgin Islands."
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
Enactment of section 932 and repeal of prior section 932
applicable to taxable years beginning after Dec. 31, 1986, with
certain exceptions and qualifications, see section 1277 of Pub. L.
99-514, set out as an Effective Date of 1986 Amendment note under
section 931 of this title.
REGULATIONS
Section 1274(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(w)(4), Nov. 10, 1988, 102 Stat. 3530, provided
that: "The Secretary of the Treasury or his delegate shall
prescribe such regulations as may be necessary or appropriate for
applying the Internal Revenue Code of 1986 [this title] for
purposes of determining tax liability incurred to the Virgin
Islands."
AUTHORITY TO IMPOSE NONDISCRIMINATORY LOCAL INCOME TAXES
Section 1274(b) of Pub. L. 99-514 provided that: "Nothing in any
provision of Federal law shall prevent the Virgin Islands from
imposing on any person nondiscriminatory local income taxes. Any
taxes so imposed shall be treated in the same manner as State and
local income taxes under section 164 of the Internal Revenue Code
of 1954 [now 1986] and shall not be treated as taxes to which
section 901 of such Code applies."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 871, 934, 7654 of this
title; title 42 section 411.
-End-
-CITE-
26 USC Sec. 933 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart D - Possessions of the United States
-HEAD-
Sec. 933. Income from sources within Puerto Rico
-STATUTE-
The following items shall not be included in gross income and
shall be exempt from taxation under this subtitle:
(1) Resident of Puerto Rico for entire taxable year
In the case of an individual who is a bona fide resident of
Puerto Rico during the entire taxable year, income derived from
sources within Puerto Rico (except amounts received for services
performed as an employee of the United States or any agency
thereof); but such individual shall not be allowed as a deduction
from his gross income any deductions (other than the deduction
under section 151, relating to personal exemptions), or any
credit, properly allocable to or chargeable against amounts
excluded from gross income under this paragraph.
(2) Taxable year of change of residence from Puerto Rico
In the case of an individual citizen of the United States who
has been a bona fide resident of Puerto Rico for a period of at
least 2 years before the date on which he changes his residence
from Puerto Rico, income derived from sources therein (except
amounts received for services performed as an employee of the
United States or any agency thereof) which is attributable to
that part of such period of Puerto Rican residence before such
date; but such individual shall not be allowed as a deduction
from his gross income any deductions (other than the deduction
for personal exemptions under section 151), or any credit,
properly allocable to or chargeable against amounts excluded from
gross income under this paragraph.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 293; Pub. L. 99-514, title XII,
Sec. 1272(d)(3), Oct. 22, 1986, 100 Stat. 2594.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 inserted ", or any credit," in pars. (1)
and (2).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, with certain exceptions and qualifications,
see section 1277 of Pub. L. 99-514, set out as a note under section
931 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 23, 24, 25A, 25B, 86,
135, 137, 168, 221, 222, 530, 865, 876, 957, 1400C, 1402, 6091,
6103, 7655 of this title; title 42 sections 411, 1395r.
-End-
-CITE-
26 USC Sec. 934 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart D - Possessions of the United States
-HEAD-
Sec. 934. Limitation on reduction in income tax liability incurred
to the Virgin Islands
-STATUTE-
(a) General rule
Tax liability incurred to the Virgin Islands pursuant to this
subtitle, as made applicable in the Virgin Islands by the Act
entitled "An Act making appropriations for the naval service for
the fiscal year ending June 30, 1922, and for other purposes",
approved July 12, 1921 (48 U.S.C. 1397), or pursuant to section
28(a) of the Revised Organic Act of the Virgin Islands, approved
July 22, 1954 (48 U.S.C. 1642), shall not be reduced or remitted in
any way, directly or indirectly, whether by grant, subsidy, or
other similar payment, by any law enacted in the Virgin Islands,
except to the extent provided in subsection (b).
(b) Reductions permitted with respect to certain income
(1) In general
Except as provided in paragraph (2), subsection (a) shall not
apply with respect to so much of the tax liability referred to in
subsection (a) as is attributable to income derived from sources
within the Virgin Islands or income effectively connected with
the conduct of a trade or business within the Virgin Islands.
(2) Exception for liability paid by citizens or residents of the
United States
Paragraph (1) shall not apply to any liability payable to the
Virgin Islands under section 932(b).
(3) Special rule for non-United States income of certain foreign
corporations
(A) In general
In the case of a qualified foreign corporation, subsection
(a) shall not apply with respect to so much of the tax
liability referred to in subsection (a) as is attributable to
income which is derived from sources outside the United States
and which is not effectively connected with the conduct of a
trade or business within the United States.
(B) Qualified foreign corporation
For purposes of subparagraph (A), the term "qualified foreign
corporation" means any foreign corporation if less than 10
percent of -
(i) the total voting power of the stock of such
corporation, and
(ii) the total value of the stock of such corporation, is
owned or treated as owned (within the meaning of section 958)
by 1 or more United States persons.
(4) Determination of income source, etc.
The determination as to whether income is derived from sources
within the Virgin Islands or the United States or is effectively
connected with the conduct of a trade or business within the
Virgin Islands or the United States shall be made under
regulations prescribed by the Secretary.
-SOURCE-
(Added Pub. L. 86-779, Sec. 4(a)(1), Sept. 14, 1960, 74 Stat. 998;
amended Pub. L. 94-455, title XIX, Secs. 1901(a)(118),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1784, 1834; Pub. L. 97-248,
title II, Sec. 213(b), Sept. 3, 1982, 96 Stat. 463; Pub. L. 97-455,
Sec. 1(c), Jan. 12, 1983, 96 Stat. 2498; Pub. L. 98-369, div. A,
title VIII, Sec. 801(d)(7), July 18, 1984, 98 Stat. 996; Pub. L.
99-514, title XII, Sec. 1275(a)(2)(A), (c)(1), (2), title XVIII,
Sec. 1876(f)(2), Oct. 22, 1986, 100 Stat. 2598, 2900.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1275(c)(2)(A), struck
out "or (c) or in section 934A" after "subsection (b)".
Subsec. (b). Pub. L. 99-514, Sec. 1275(c)(1), (2)(B), added
subsec. (b) and struck out former subsec. (b) which excepted from
subsec. (a) domestic or Virgin Islands corporations to the extent
they derived income from sources without the United States under
certain conditions.
Subsec. (c). Pub. L. 99-514, Sec. 1275(c)(1), struck out subsec.
(c) which provided an exception to subsec. (a) of this section for
individual citizens of the United States residing in the Virgin
Islands to the extent their income is derived from sources within
the Virgin Islands.
Subsec. (d). Pub. L. 99-514, Sec. 1275(c)(1), struck out subsec.
(d) which related to requirement to supply information.
Subsec. (e). Pub. L. 99-514, Sec. 1275(a)(2)(A), struck out
subsec. (e) which provided for tax treatment of intangible property
income of certain domestic corporations.
Subsec. (f). Pub. L. 99-514, Sec. 1275(a)(2)(A), struck out
subsec. (f) which provided a transitional rule for applying subsec.
(b)(2) of this section with respect to taxable years beginning
after Dec. 31, 1982, and before Jan. 1, 1985.
Pub. L. 99-514, Sec. 1876(f)(2), struck out subsec. (f) which
provided that subsec. (a) of this section not apply in the case of
a Virgin Islands corporation which is a FSC.
1984 - Subsec. (f). Pub. L. 98-369 added subsec. (f) relating to
FSC.
1983 - Subsec. (a). Pub. L. 97-455 inserted "or in section 934A"
after "subsection (b) or (c)".
1982 - Subsec. (b)(2). Pub. L. 97-248, Sec. 213(b)(1),
substituted "65 percent" for "50 percent".
Subsec. (e). Pub. L. 97-248, Sec. 213(b)(2), added subsec. (e).
Subsec. (f). Pub. L. 97-248, Sec. 213(b)(2), added a temporary
subsec. (f) which provided that in applying subsec. (b)(2) with
respect to taxable years beginning after December 31, 1982, and
before January 1, 1985, "55 percent" shall be substituted for "65
percent" for taxable years beginning in calendar year 1983 and "60
percent" shall be substituted for "65 percent" for taxable years
beginning in calendar year 1984.
1976 - Subsec. (b). Pub. L. 94-455, Sec. 1901(a)(118), struck out
"For the purposes of this subsection, all amounts received by such
corporation within the United States, whether derived from sources
within or without the United States, shall be considered as being
derived from sources within the United States".
Subsec. (d). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary" in two places.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1275(a)(2)(A), (c)(1), (2) of Pub. L. 99-514
applicable to taxable years beginning after Dec. 31, 1986, with
certain exceptions and qualifications, see section 1277 of Pub. L.
99-514, set out as a note under section 931 of this title.
Amendment by section 1876(f)(2) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to transactions after Dec.
31, 1984, in taxable years ending after such date, see section
805(a)(1) of Pub. L. 98-369, as amended, set out as a note under
section 245 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 1(e) of Pub. L. 97-455 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting section 934A and amending
this section] shall apply to amounts received after the date of the
enactment of this Act [Jan. 12, 1983] in taxable years ending after
such date.
"(2) Withholding. - The amendment made by subsection (b)
[enacting section 1444 of this title] shall apply to payments made
after the date of the enactment of this Act."
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, except that so much of this section to which
section 936(h)(6) applies by reason of subsec. (e)(4) of this
section is applicable to taxable years ending after July 1, 1982,
see section 213(e)(1), (2) of Pub. L. 97-248 set out as a note
under section 936 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(118) of Pub. L. 94-455 applicable
with respect to 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
Section 4(e)(1) of Pub. L. 86-779 provided that: "The amendments
made by subsection (a) [enacting this section] shall apply to tax
liability incurred with respect to taxable years beginning on or
after January 1, 1960."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
REPORT ON POSSESSIONS CORPORATIONS
For provisions requiring the Secretary of the Treasury to submit
a report to Congress respecting the operation and effect of subsec.
(b) of this section for the year 1981 and each second calendar year
thereafter, see section 441(a) of Pub. L. 98-369, set out as a note
under section 936 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 932 of this title.
-End-
-CITE-
26 USC Sec. 934A 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart D - Possessions of the United States
-HEAD-
[Sec. 934A. Repealed. Pub. L. 99-514, title XII, Sec. 1275(c)(3),
Oct. 22, 1986, 100 Stat. 2599]
-MISC1-
Section, added Pub. L. 97-455, Sec. 1(a), Jan. 12, 1983, 96 Stat.
2497, related to income tax rate on Virgin Islands source income.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1986,
with certain exceptions and qualifications, see section 1277 of
Pub. L. 99-514, set out as an Effective Date of 1986 Amendment note
under section 931 of this title.
-End-
-CITE-
26 USC Sec. 935 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart D - Possessions of the United States
-HEAD-
[Sec. 935. Repealed. Pub. L. 99-514, title XII, Sec. 1272(d)(2),
Oct. 22, 1986, 100 Stat. 2594]
-MISC1-
Section, added Pub. L. 92-606, Sec. 1(a), Oct. 31, 1972, 86 Stat.
1494, related to coordination of United States and Guam individual
income taxes.
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1986,
with certain exceptions and qualifications, see section 1277 of
Pub. L. 99-514, set out as an Effective Date of 1986 Amendment note
under section 931 of this title.
-End-
-CITE-
26 USC Sec. 936 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart D - Possessions of the United States
-HEAD-
Sec. 936. Puerto Rico and possession tax credit
-STATUTE-
(a) Allowance of credit
(1) In general
Except as otherwise provided in this section, if a domestic
corporation elects the application of this section and if the
conditions of both subparagraph (A) and subparagraph (B) of
paragraph (2) are satisfied, there shall be allowed as a credit
against the tax imposed by this chapter an amount equal to the
portion of the tax which is attributable to the sum of -
(A) the taxable income, from sources without the United
States, from -
(i) the active conduct of a trade or business within a
possession of the United States, or
(ii) the sale or exchange of substantially all of the
assets used by the taxpayer in the active conduct of such
trade or business, and
(B) the qualified possession source investment income.
(2) Conditions which must be satisfied
The conditions referred to in paragraph (1) are:
(A) 3-year period
If 80 percent or more of the gross income of such domestic
corporation for the 3-year period immediately preceding the
close of the taxable year (or for such part of such period
immediately preceding the close of such taxable year as may be
applicable) was derived from sources within a possession of the
United States (determined without regard to section 904(f));
and
(B) Trade or business
If 75 percent or more of the gross income of such domestic
corporation for such period or such part thereof was derived
from the active conduct of a trade or business within a
possession of the United States.
(3) Credit not allowed against certain taxes
The credit provided by paragraph (1) shall not be allowed
against the tax imposed by -
(A) section 59A (relating to environmental tax),
(B) section 531 (relating to the tax on accumulated
earnings),
(C) section 541 (relating to personal holding company tax),
or
(D) section 1351 (relating to recoveries of foreign
expropriation losses).
(4) Limitations on credit for active business income
(A) In general
The amount of the credit determined under paragraph (1) for
any taxable year with respect to income referred to in
subparagraph (A) thereof shall not exceed the sum of the
following amounts:
(i) 60 percent of the sum of -
(I) the aggregate amount of the possession corporation's
qualified possession wages for such taxable year, plus
(II) the allocable employee fringe benefit expenses of
the possession corporation for the taxable year.
(ii) The sum of -
(I) 15 percent of the depreciation allowances for the
taxable year with respect to short-life qualified tangible
property,
(II) 40 percent of the depreciation allowances for the
taxable year with respect to medium-life qualified tangible
property, and
(III) 65 percent of the depreciation allowances for the
taxable year with respect to long-life qualified tangible
property.
(iii) If the possession corporation does not have an
election to use the method described in subsection
(h)(5)(C)(ii) (relating to profit split) in effect for the
taxable year, the amount of qualified possession income taxes
for the taxable year allocable to nonsheltered income.
(B) Election to take reduced credit
(i) In general
If an election under this subparagraph applies to a
possession corporation for any taxable year -
(I) subparagraph (A), and the provisions of subsection
(i), shall not apply to such possession corporation for
such taxable year, and
(II) the credit determined under paragraph (1) for such
taxable year with respect to income referred to in
subparagraph (A) thereof shall be the applicable percentage
of the credit which would otherwise have been determined
under such paragraph with respect to such income.
Notwithstanding subclause (I), a possession corporation to
which an election under this subparagraph applies shall be
entitled to the benefits of subsection (i)(3)(B) for taxes
allocable (on a pro rata basis) to taxable income the tax on
which is not offset by reason of this subparagraph.
(ii) Applicable percentage
The term "applicable percentage" means the percentage
determined in accordance with the following table:
In the case of taxable The
years beginning in: percentage is:
1994 60
1995 55
1996 50
1997 45
1998 and thereafter 40.
(iii) Election
(I) In general
An election under this subparagraph by any possession
corporation may be made only for the corporation's first
taxable year beginning after December 31, 1993, for which
it is a possession corporation.
(II) Period of election
An election under this subparagraph shall apply to the
taxable year for which made and all subsequent taxable
years unless revoked.
(III) Affiliated groups
If, for any taxable year, an election is not in effect
for any possession corporation which is a member of an
affiliated group, any election under this subparagraph for
any other member of such group is revoked for such taxable
year and all subsequent taxable years. For purposes of this
subclause, members of an affiliated group shall be
determined without regard to the exceptions contained in
section 1504(b) and as if the constructive ownership rules
of section 1563(e) applied for purposes of section 1504(a).
The Secretary may prescribe regulations to prevent the
avoidance of this subclause through deconsolidation or
otherwise.
(C) Cross reference
For definitions and special rules applicable to this
paragraph, see subsection (i).
(b) Amounts received in United States
In determining taxable income for purposes of subsection (a),
there shall not be taken into account as income from sources
without the United States any gross income which was received by
such domestic corporation within the United States, whether derived
from sources within or without the United States. This subsection
shall not apply to any amount described in subsection (a)(1)(A)(i)
received from a person who is not a related person (within the
meaning of subsection (h)(3) but without regard to subparagraphs
(D)(ii) and (E)(i) thereof) with respect to the domestic
corporation.
(c) Treatment of certain foreign taxes
For purposes of this title, any tax of a foreign country or a
possession of the United States which is paid or accrued with
respect to taxable income which is taken into account in computing
the credit under subsection (a) shall not be treated as income, war
profits, or excess profits taxes paid or accrued to a foreign
country or possession of the United States, and no deduction shall
be allowed under this title with respect to any amounts so paid or
accrued.
(d) Definitions and special rules
For purposes of this section -
(1) Possession
The term "possession of the United States" includes the
Commonwealth of Puerto Rico and the Virgin Islands.
(2) Qualified possession source investment income
The term "qualified possession source investment income" means
gross income which -
(A) is from sources within a possession of the United States
in which a trade or business is actively conducted, and
(B) the taxpayer establishes to the satisfaction of the
Secretary is attributable to the investment in such possession
(for use therein) of funds derived from the active conduct of a
trade or business in such possession, or from such investment,
less the deductions properly apportioned or allocated thereto.
(3) Carryover basis property
(A) In general
Income from the sale or exchange of any asset the basis of
which is determined in whole or in part by reference to its
basis in the hands of another person shall not be treated as
income described in subparagraph (A) or (B) of subsection
(a)(1).
(B) Exception for possessions corporations, etc.
For purposes of subparagraph (A), the holding of any asset by
another person shall not be taken into account if throughout
the period for which such asset was held by such person section
931, this section, or section 957(c) (as in effect on the day
before the date of the enactment of the Tax Reform Act of 1986)
applied to such person.
(4) Investment in qualified Caribbean Basin countries
(A) In general
For purposes of paragraph (2)(B), an investment in a
financial institution shall, subject to such conditions as the
Secretary may prescribe by regulations, be treated as for use
in Puerto Rico to the extent used by such financial institution
(or by the Government Development Bank for Puerto Rico or the
Puerto Rico Economic Development Bank) -
(i) for investment, consistent with the goals and purposes
of the Caribbean Basin Economic Recovery Act, in -
(I) active business assets in a qualified Caribbean Basin
country, or
(II) development projects in a qualified Caribbean Basin
country, and
(ii) in accordance with a specific authorization granted by
the Commissioner of Financial Institutions of Puerto Rico
pursuant to regulations issued by such Commissioner.
A similar rule shall apply in the case of a direct investment
in the Government Development Bank for Puerto Rico or the
Puerto Rico Economic Development Bank.
(B) Qualified Caribbean Basin country
For purposes of this subsection, the term "qualified
Caribbean Basin country" means any beneficiary country (within
the meaning of section 212(a)(1)(A) of the Caribbean Basin
Economic Recovery Act) which meets the requirements of clauses
(i) and (ii) of section 274(h)(6)(A) and the Virgin Islands.
(C) Additional requirements
Subparagraph (A) shall not apply to any investment made by a
financial institution (or by the Government Development Bank
for Puerto Rico or the Puerto Rico Economic Development Bank)
unless -
(i) the person in whose trade or business such investment
is made (or such other recipient of the investment) and the
financial institution or such Bank certify to the Secretary
and the Commissioner of Financial Institutions of Puerto Rico
that the proceeds of the loan will be promptly used to
acquire active business assets or to make other authorized
expenditures, and
(ii) the financial institution (or the Government
Development Bank for Puerto Rico or the Puerto Rico Economic
Development Bank) and the recipient of the investment funds
agree to permit the Secretary and the Commissioner of
Financial Institutions of Puerto Rico to examine such of
their books and records as may be necessary to ensure that
the requirements of this paragraph are met.
(D) Requirement for investment in Caribbean Basin countries
(i) In general
For each calendar year, the government of Puerto Rico shall
take such steps as may be necessary to ensure that at least
$100,000,000 of qualified Caribbean Basin country investments
are made during such calendar year.
(ii) Qualified Caribbean Basin country investment
For purposes of clause (i), the term "qualified Caribbean
Basin country investment" means any investment if -
(I) the income from such investment is treated as
qualified possession source investment income by reason of
subparagraph (A), and
(II) such investment is not (directly or indirectly) a
refinancing of a prior investment (whether or not such
prior investment was a qualified Caribbean Basin country
investment).
(e) Election
(1) Period of election
The election provided in subsection (a) shall be made at such
time and in such manner as the Secretary may by regulations
prescribe. Any such election shall apply to the first taxable
year for which such election was made and for which the domestic
corporation satisfied the conditions of subparagraphs (A) and (B)
of subsection (a)(2) and for each taxable year thereafter until
such election is revoked by the domestic corporation under
paragraph (2). If any such election is revoked by the domestic
corporation under paragraph (2), such domestic corporation may
make a subsequent election under subsection (a) for any taxable
year thereafter for which such domestic corporation satisfies the
conditions of subparagraphs (A) and (B) of subsection (a)(2) and
any such subsequent election shall remain in effect until revoked
by such domestic corporation under paragraph (2).
(2) Revocation
An election under subsection (a) -
(A) may be revoked for any taxable year beginning before the
expiration of the 9th taxable year following the taxable year
for which such election first applies only with the consent of
the Secretary; and
(B) may be revoked for any taxable year beginning after the
expiration of such 9th taxable year without the consent of the
Secretary.
(f) Limitation on credit for DISC's and FSC's
No credit shall be allowed under this section to a corporation
for any taxable year -
(1) for which it is a DISC or former DISC, or
(2) in which it owns at any time stock in a -
(A) DISC or former DISC, or
(B) FSC or former FSC.
(g) Exception to accumulated earnings tax
(1) For purposes of section 535, the term "accumulated taxable
income" shall not include taxable income entitled to the credit
under subsection (a).
(2) For purposes of section 537, the term "reasonable needs of
the business" includes assets which produce income eligible for the
credit under subsection (a).
(h) Tax treatment of intangible property income
(1) In general
(A) Income attributable to shareholders
The intangible property income of a corporation electing the
application of this section for any taxable year shall be
included on a pro rata basis in the gross income of all
shareholders of such electing corporation at the close of the
taxable year of such electing corporation as income from
sources within the United States for the taxable year of such
shareholder in which or with which the taxable year of such
electing corporation ends.
(B) Exclusion from the income of an electing corporation
Any intangible property income of a corporation electing the
application of this section which is included in the gross
income of a shareholder of such corporation by reason of
subparagraph (A) shall be excluded from the gross income of
such corporation.
(2) Foreign shareholders; shareholders not subject to tax
(A) In general
Paragraph (1)(A) shall not apply with respect to any
shareholder -
(i) who is not a United States person, or
(ii) who is not subject to tax under this title on
intangible property income which would be allocated to such
shareholder (but for this subparagraph).
(B) Treatment of nonallocated intangible property income
For purposes of this subtitle, intangible property income of
a corporation electing the application of this section which is
not included in the gross income of a shareholder of such
corporation by reason of subparagraph (A) -
(i) shall be treated as income from sources within the
United States, and
(ii) shall not be taken into account under subsection
(a)(2).
(3) Intangible property income
For purposes of this subsection -
(A) In general
The term "intangible property income" means the gross income
of a corporation attributable to any intangible property other
than intangible property which has been licensed to such
corporation since prior to 1948 and is in use by such
corporation on the date of the enactment of this subparagraph.
(B) Intangible property
The term "intangible property" means any -
(i) patent, invention, formula, process, design, pattern,
or know-how;
(ii) copyright, literary, musical, or artistic composition;
(iii) trademark, trade name, or brand name;
(iv) franchise, license, or contract;
(v) method, program, system, procedure, campaign, survey,
study, forecast, estimate, customer list, or technical data;
or
(vi) any similar item,
which has substantial value independent of the services of any
individual.
(C) Exclusion of reasonable profit
The term "intangible property income" shall not include any
portion of the income from the sale, exchange or other
disposition of any product, or from the rendering of services,
by a corporation electing the application of this section which
is determined by the Secretary to be a reasonable profit on the
direct and indirect costs incurred by such electing corporation
which are attributable to such income.
(D) Related person
(i) In general
A person (hereinafter referred to as the "related person")
is related to any person if -
(I) the related person bears a relationship to such
person specified in section 267(b) or section 707(b)(1), or
(II) the related person and such person are members of
the same controlled group of corporations.
(ii) Special rule
For purposes of clause (i), section 267(b) and section
707(b)(1) shall be applied by substituting "10 percent" for
"50 percent".
(E) Controlled group of corporations
The term "controlled group of corporations" has the meaning
given to such term by section 1563(a), except that -
(i) "more than 10 percent" shall be substituted for "at
least 80 percent" and "more than 50 percent" each place
either appears in section 1563(a), and
(ii) the determination shall be made without regard to
subsections (a)(4), (b)(2), and (e)(3)(C) of section 1563.
(4) Distributions to meet qualification requirements
(A) In general
If the Secretary determines that a corporation does not
satisfy a condition specified in subparagraph (A) or (B) of
subsection (a)(2) for any taxable year by reason of the
exclusion from gross income under paragraph (1)(B), such
corporation shall nevertheless be treated as satisfying such
condition for such year if it makes a pro rata distribution of
property after the close of such taxable year to its
shareholders (designated at the time of such distribution as a
distribution to meet qualification requirements) with respect
to their stock in an amount which is equal to -
(i) if the condition of subsection (a)(2)(A) is not
satisfied, that portion of the gross income for the period
described in subsection (a)(2)(A) -
(I) which was not derived from sources within a
possession, and
(II) which exceeds the amount of such income for such
period which would enable such corporation to satisfy the
condition of subsection (a)(2)(A),
(ii) if the condition of subsection (a)(2)(B) is not
satisfied, that portion of the gross income for such period -
(I) which was not derived from the active conduct of a
trade or business within a possession, and
(II) which exceeds the amount of such income for such
period which would enable such corporation to satisfy the
conditions of subsection (a)(2)(B), or
(iii) if neither of such conditions is satisfied, that
portion of the gross income which exceeds the amount of gross
income for such period which would enable such corporation to
satisfy the conditions of subparagraphs (A) and (B) of
subsection (a)(2).
(B) Effectively connected income
In the case of a shareholder who is a nonresident alien
individual or a foreign corporation, trust, or estate, any
distribution described in subparagraph (A) shall be treated as
income which is effectively connected with the conduct of a
trade or business conducted through a permanent establishment
of such shareholder within the United States.
(C) Distribution denied in case of fraud or willful neglect
Subparagraph (A) shall not apply to a corporation if the
determination of the Secretary described in subparagraph (A)
contains a finding that the failure of such corporation to
satisfy the conditions in subsection (a)(2) was due in whole or
in part to fraud with intent to evade tax or willful neglect on
the part of such corporation.
(5) Election out
(A) In general
The rules contained in paragraphs (1) through (4) do not
apply for any taxable year if an election pursuant to
subparagraph (F) is in effect to use one of the methods
specified in subparagraph (C).
(B) Eligibility
(i) Requirement of significant business presence
An election may be made to use one of the methods specified
in subparagraph (C) with respect to a product or type of
service only if an electing corporation has a significant
business presence in a possession with respect to such
product or type of service. An election may remain in effect
with respect to such product or type of service for any
subsequent taxable year only if such electing corporation
maintains a significant business presence in a possession
with respect to such product or type of service in such
subsequent taxable year. If an election is not in effect for
a taxable year because of the preceding sentence, the
electing corporation shall be deemed to have revoked the
election on the first day of such taxable year.
(ii) Definition
For purposes of this subparagraph, an electing corporation
has a "significant business presence" in a possession for a
taxable year with respect to a product or type of service if:
(I) the total production costs (other than direct
material costs and other than interest excluded by
regulations prescribed by the Secretary) incurred by the
electing corporation in the possession in producing units
of that product sold or otherwise disposed of during the
taxable year by the affiliated group to persons who are not
members of the affiliated group are not less than 25
percent of the difference between (a) the gross receipts
from sales or other dispositions during the taxable year by
the affiliated group to persons who are not members of the
affiliated group of such units of the product produced, in
whole or in part, by the electing corporation in the
possession, and (b) the direct material costs of the
purchase of materials for such units of that product by all
members of the affiliated group from persons who are not
members of the affiliated group; or
(II) no less than 65 percent of the direct labor costs of
the affiliated group for units of the product produced
during the taxable year in whole or in part by the electing
corporation or for the type of service rendered by the
electing corporation during the taxable year, is incurred
by the electing corporation and is compensation for
services performed in the possession; or
(III) with respect to purchases and sales by an electing
corporation of all goods not produced in whole or in part
by any member of the affiliated group and sold by the
electing corporation to persons other than members of the
affiliated group, no less than 65 percent of the total
direct labor costs of the affiliated group in connection
with all purchases and sales of such goods sold during the
taxable year by such electing corporation is incurred by
such electing corporation and is compensation for services
performed in the possession.
Notwithstanding satisfaction of one of the foregoing tests,
an electing corporation shall not be treated as having a
significant business presence in a possession with respect to
a product produced in whole or in part by the electing
corporation in the possession, for purposes of an election to
use the method specified in subparagraph (C)(ii), unless such
product is manufactured or produced in the possession by the
electing corporation within the meaning of subsection
(d)(1)(A) of section 954.
(iii) Special rules
(I) An electing corporation which produces a product or
renders a type of service in a possession on the date of the
enactment of this clause is not required to meet the
significant business presence test in a possession with
respect to such product or type of service for its taxable
years beginning before January 1, 1986.
(II) For purposes of this subparagraph, the costs incurred
by an electing corporation or any other member of the
affiliated group in connection with contract manufacturing by
a person other than a member of the affiliated group, or in
connection with a similar arrangement thereto, shall be
treated as direct labor costs of the affiliated group and
shall not be treated as production costs incurred by the
electing corporation in the possession or as direct material
costs or as compensation for services performed in the
possession, except to the extent as may be otherwise provided
in regulations prescribed by the Secretary.
(iv) Regulations
The Secretary may prescribe regulations setting forth:
(I) an appropriate transitional (but not in excess of
three taxable years) significant business presence test for
commencement in a possession of operations with respect to
products or types of service after the date of the
enactment of this clause and not described in subparagraph
(B)(iii)(I),
(II) a significant business presence test for other
appropriate cases, consistent with the tests specified in
subparagraph (B)(ii),
(III) rules for the definition of a product or type of
service, and
(IV) rules for treating components produced in whole or
in part by a related person as materials, and the costs
(including direct labor costs) related thereto as a cost of
materials, where there is an independent resale price for
such components or where otherwise consistent with the
intent of the substantial business presence tests.
(C) Methods of computation of taxable income
If an election of one of the following methods is in effect
pursuant to subparagraph (F) with respect to a product or type
of service, an electing corporation shall compute its income
derived from the active conduct of a trade or business in a
possession with respect to such product or type of service in
accordance with the method which is elected.
(i) Cost sharing
(I) Payment of cost sharing
If an election of this method is in effect, the electing
corporation must make a payment for its share of the cost
(if any) of product area research which is paid or accrued
by the affiliated group during that taxable year. Such
share shall not be less than the same proportion of 110
percent of the cost of such product area research which the
amount of "possession sales" bears to the amount of "total
sales" of the affiliated group. The cost of product area
research paid or accrued solely by the electing corporation
in a taxable year (excluding amounts paid directly or
indirectly to or on behalf of related persons and excluding
amounts paid under any cost sharing agreements with related
persons) will reduce (but not below zero) the amount of the
electing corporation's cost sharing payment under this
method for that year. In the case of intangible property
described in subsection (h)(3)(B)(i) which the electing
corporation is treated as owning under subclause (II), in
no event shall the payment required under this subclause be
less than the inclusion or payment which would be required
under section 367(d)(2)(A)(ii) or section 482 if the
electing corporation were a foreign corporation.
(a) Product area research
For purposes of this section, the term "product area
research" includes (notwithstanding any provision to the
contrary) the research, development and experimental
costs, losses, expenses and other related deductions -
including amounts paid or accrued for the performance of
research or similar activities by another person;
qualified research expenses within the meaning of section
41(b); amounts paid or accrued for the use of, or the
right to use, research or any of the items specified in
subsection (h)(3)(B)(i); and a proper allowance for
amounts incurred for the acquisition of any of the items
specified in subsection (h)(3)(B)(i) - which are properly
apportioned or allocated to the same product area as that
in which the electing corporation conducts its
activities, and a ratable part of any such costs, losses,
expenses and other deductions which cannot definitely be
allocated to a particular product area.
(b) Affiliated group
For purposes of this subsection, the term "affiliated
group" shall mean the electing corporation and all other
organizations, trades or businesses (whether or not
incorporated, whether or not organized in the United
States, and whether or not affiliated) owned or
controlled directly or indirectly by the same interests,
within the meaning of section 482.
(c) Possession sales
For purposes of this section, the term "possession
sales" means the aggregate sales or other dispositions
for the taxable year to persons who are not members of
the affiliated group by members of the affiliated group
of products produced, in whole or in part, by the
electing corporation in the possession which are in the
same product area as is used for determining the amount
of product area research, and of services rendered, in
whole or in part, in the possession in such product area
to persons who are not members of the affiliated group.
(d) Total sales
For purposes of this section, the term "total sales"
means the aggregate sales or other dispositions for the
taxable year to persons who are not members of the
affiliated group by members of the affiliated group of
all products in the same product area as is used for
determining the amount of product area research, and of
services rendered in such product area to persons who are
not members of the affiliated group.
(e) Product area
For purposes of this section, the term "product area"
shall be defined by reference to the three-digit
classification of the Standard Industrial Classification
code. The Secretary may provide for the aggregation of
two or more three-digit classifications where
appropriate, and for a classification system other than
the Standard Industrial Classification code in
appropriate cases.
(II) Effect of election
For purposes of determining the amount of its gross
income derived from the active conduct of a trade or
business in a possession with respect to a product produced
by, or type of service rendered by, the electing
corporation for a taxable year, if an election of this
method is in effect, the electing corporation shall be
treated as the owner (for purposes of obtaining a return
thereon) of intangible property described in subsection
(h)(3)(B)(i) which is related to the units of the product
produced, or type of service rendered, by the electing
corporation. Such electing corporation shall not be treated
as the owner (for purposes of obtaining a return thereon)
of any intangible property described in subsection
(h)(3)(B)(ii) through (v) (to the extent not described in
subsection (h)(3)(B)(i)) or of any other nonmanufacturing
intangible. Notwithstanding the preceding sentence, an
electing corporation shall be treated as the owner (for
purposes of obtaining a return thereon) of (a) intangible
property which was developed solely by such corporation in
a possession and is owned by such corporation, (b)
intangible property described in subsection (h)(3)(B)(i)
acquired by such corporation from a person who was not
related to such corporation (or to any person related to
such corporation) at the time of, or in connection with,
such acquisition, and (c) any intangible property described
in subsection (h)(3)(B)(ii) through (v) (to the extent not
described in subsection (h)(3)(B)(i)) and other
nonmanufacturing intangibles which relate to sales of units
of products, or services rendered, to unrelated persons for
ultimate consumption or use in the possession in which the
electing corporation conducts its trade or business.
(III) Payment provisions
(a) The cost sharing payment determined under
subparagraph (C)(i)(I) for any taxable year shall be made
to the person or persons specified in subparagraph
(C)(i)(IV)(a) not later than the time prescribed by law for
filing the electing corporation's return for such taxable
year (including any extensions thereof). If all or part of
such payment is not timely made, the amount of the cost
sharing payment required to be paid shall be increased by
the amount of interest that would have been due under
section 6601(a) had the portion of the cost sharing payment
that is not timely made been an amount of tax imposed by
this title and had the last date prescribed for payment
been the due date of the electing corporations (!1) return
(determined without regard to any extension thereof). The
amount by which a cost sharing payment determined under
subparagraph (C)(i)(I) is increased by reason of the
preceding sentence shall not be treated as a cost sharing
payment or as interest. If failure to make timely payment
is due in whole or in part to fraud or willful neglect, the
electing corporation shall be deemed to have revoked the
election made under subparagraph (A) on the first day of
the taxable year for which the cost sharing payment was
required.
(b) For purposes of this title, any tax of a foreign
country or possession of the United States which is paid or
accrued with respect to the payment or receipt of a cost
sharing payment determined under subparagraph (C)(i)(I) or
of an amount of increase referred to in subparagraph
(C)(i)(III)(a) shall not be treated as income, war profits,
or excess profits taxes paid or accrued to a foreign
country or possession of the United States, and no
deduction shall be allowed under this title with respect to
any amounts of such tax so paid or accrued.
(IV) Special rules
(a) The amount of the cost sharing payment determined
under subparagraph (C)(i)(I), and any increase in the
amount thereof in accordance with subparagraph
(C)(i)(III)(a), shall not be treated as income of the
recipient, but shall reduce the amount of the deductions
(and the amount of reductions in earnings and profits)
otherwise allowable to the appropriate domestic member or
members (other than an electing corporation) of the
affiliated group, or, if there is no such domestic member,
to the foreign member or members of such affiliated group
as the Secretary may provide under regulations.
(b) If an election of this method is in effect, the
electing corporation shall determine its intercompany
pricing under the appropriate section 482 method, provided,
however, that an electing corporation shall not be denied
use of the resale price method for purposes of such
intercompany pricing merely because the reseller adds more
than an insubstantial amount to the value of the product by
the use of intangible property.
(c) The amount of qualified research expenses, within the
meaning of section 41, of any member of the controlled
group of corporations (as defined in section 41(f)) of
which the electing corporation is a member shall not be
affected by the cost sharing payment required under this
method.
(ii) Profit split
(I) General rule
If an election of this method is in effect, the electing
corporation's taxable income derived from the active
conduct of a trade or business in a possession with respect
to units of a product produced or type of service rendered,
in whole or in part, by the electing corporation shall be
equal to 50 percent of the combined taxable income of the
affiliated group (other than foreign affiliates) derived
from covered sales of units of the product produced or type
of service rendered, in whole or in part, by the electing
corporation in a possession.
(II) Computation of combined taxable income
Combined taxable income shall be computed separately for
each product produced or type of service rendered, in whole
or in part, by the electing corporation in a possession.
Combined taxable income shall be computed (notwithstanding
any provision to the contrary) for each such product or
type of service rendered by deducting from the gross income
of the affiliated group (other than foreign affiliates)
derived from covered sales of such product or type of
service all expenses, losses, and other deductions properly
apportioned or allocated to gross income from such sales or
services, and a ratable part of all expenses, losses, or
other deductions which cannot definitely be allocated to
some item or class of gross income, which are incurred by
the affiliated group (other than foreign affiliates).
Notwithstanding any other provision to the contrary, in
computing the combined taxable income for each such product
or type of service rendered, the research, development, and
experimental costs, expenses and related deductions for the
taxable year which would otherwise be apportioned or
allocated to the gross income of the affiliated group
(other than foreign affiliates) derived from covered sales
of such product produced or type of service rendered, in
whole or in part, by the electing corporation in a
possession, shall not be less than the same proportion of
the amount of the share of product area research determined
under subparagraph (C)(i)(I) (without regard to the third
and fourth sentences thereof, but substituting "120
percent" for "110 percent" in the second sentence thereof)
in the product area which includes such product or type of
service, that such gross income from the product or type of
service bears to such gross income from all products and
types of services, within such product area, produced or
rendered, in whole or part, by the electing corporation in
a possession.
(III) Division of combined taxable income
50 percent of the combined taxable income computed as
provided in subparagraph (C)(ii)(II) shall be allocated to
the electing corporation. Combined taxable income, computed
without regard to the last sentence of subparagraph
(C)(ii)(II), less the amount allocated to the electing
corporation under the preceding sentence, shall be
allocated to the appropriate domestic member or members
(other than any electing corporation) of the affiliated
group and shall be treated as income from sources within
the United States, or, if there is no such domestic member,
to a foreign member or members of such affiliated group as
the Secretary may provide under regulations.
(IV) Covered sales
For purposes of this paragraph, the term "covered sales"
means sales by members of the affiliated group (other than
foreign affiliates) to persons who are not members of the
affiliated group or to foreign affiliates.
(D) Unrelated person
For purposes of this paragraph, the term "unrelated person"
means any person other than a person related within the meaning
of paragraph (3)(D) to the electing corporation.
(E) Electing corporation
For purposes of this subsection, the term "electing
corporation" means a domestic corporation for which an election
under this section is in effect.
(F) Time and manner of election; revocation
(i) In general
An election under subparagraph (A) to use one of the
methods under subparagraph (C) shall be made only on or
before the due date prescribed by law (including extensions)
for filing the tax return of the electing corporation for its
first taxable year beginning after December 31, 1982. If an
election of one of such methods is made, such election shall
be binding on the electing corporation and such method must
be used for each taxable year thereafter until such election
is revoked by the electing corporation under subparagraph
(F)(iii). If any such election is revoked by the electing
corporation under subparagraph (F)(iii), such electing
corporation may make a subsequent election under subparagraph
(A) only with the consent of the Secretary.
(ii) Manner of making election
An election under subparagraph (A) to use one of the
methods under subparagraph (C) shall be made by filing a
statement to such effect with the return referred to in
subparagraph (F)(i) or in such other manner as the Secretary
may prescribe by regulations.
(iii) Revocation
(I) Except as provided in subparagraph (F)(iii)(II), an
election may be revoked for any taxable year only with the
consent of the Secretary.
(II) An election shall be deemed revoked for the year in
which the electing corporation is deemed to have revoked such
election under subparagraph (B)(i) or (C)(i)(III)(a).
(iv) Aggregation
(I) Where more than one electing corporation in the
affiliated group produces any product or renders any services
in the same product area, all such electing corporations must
elect to compute their taxable income under the same method
under subparagraph (C).
(II) All electing corporations in the same affiliated group
that produce any products or render any services in the same
product area may elect, subject to such terms and conditions
as the Secretary may prescribe by regulations, to compute
their taxable income from export sales under a different
method from that used for all other sales and services. For
this purpose, export sales means all sales by the electing
corporation of products to foreign persons for use or
consumption outside the United States and its possessions,
provided such products are manufactured or produced in the
possession within the meaning of subsection (d)(1)(A) of
section 954, and further provided (except to the extent
otherwise provided by regulations) the income derived by such
foreign person on resale of such products (in the same state
or in an altered state) is not included in foreign base
company income for purposes of section 954(a).
(III) All members of an affiliated group must consent to an
election under this subsection at such time and in such
manner as shall be prescribed by the Secretary by
regulations.
(6) Treatment of certain sales made after July 1, 1982
(A) In general
For purposes of this section, in the case of a disposition of
intangible property made by a corporation after July 1, 1982,
any gain or loss from such disposition shall be treated as gain
or loss from sources within the United States to which
paragraph (5) does not apply.
(B) Exception
Subparagraph (A) shall not apply to any disposition by a
corporation of intangible property if such disposition is to a
person who is not a related person to such corporation.
(C) Paragraph does not affect eligibility
This paragraph shall not apply for purposes of determining
whether the corporation meets the requirements of subsection
(a)(2).
(7) Section 864(e)(1) not to apply
This subsection shall be applied as if section 864(e)(1)
(relating to treatment of affiliated groups) had not been
enacted.
(8) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection, including rules for the application of this
subsection to income from leasing of products to unrelated
persons.
(i) Definitions and special rules relating to limitations of
subsection (a)(4)
(1) Qualified possession wages
For purposes of this section -
(A) In general
The term "qualified possession wages" means wages paid or
incurred by the possession corporation during the taxable year
in connection with the active conduct of a trade or business
within a possession of the United States to any employee for
services performed in such possession, but only if such
services are performed while the principal place of employment
of such employee is within such possession.
(B) Limitation on amount of wages taken into account
(i) In general
The amount of wages which may be taken into account under
subparagraph (A) with respect to any employee for any taxable
year shall not exceed 85 percent of the contribution and
benefit base determined under section 230 of the Social
Security Act for the calendar year in which such taxable year
begins.
(ii) Treatment of part-time employees, etc.
If -
(I) any employee is not employed by the possession
corporation on a substantially full-time basis at all times
during the taxable year, or
(II) the principal place of employment of any employee
with the possession corporation is not within a possession
at all times during the taxable year,
the limitation applicable under clause (i) with respect to
such employee shall be the appropriate portion (as determined
by the Secretary) of the limitation which would otherwise be
in effect under clause (i).
(C) Treatment of certain employees
The term "qualified possession wages" shall not include any
wages paid to employees who are assigned by the employer to
perform services for another person, unless the principal trade
or business of the employer is to make employees available for
temporary periods to other persons in return for compensation.
All possession corporations treated as 1 corporation under
paragraph (5) shall be treated as 1 employer for purposes of
the preceding sentence.
(D) Wages
(i) In general
Except as provided in clause (ii), the term "wages" has the
meaning given to such term by subsection (b) of section 3306
(determined without regard to any dollar limitation contained
in such section). For purposes of the preceding sentence,
such subsection (b) shall be applied as if the term "United
States" included all possessions of the United States.
(ii) Special rule for agricultural labor and railway labor
In any case to which subparagraph (A) or (B) of paragraph
(1) of section 51(h) applies, the term "wages" has the
meaning given to such term by section 51(h)(2).
(2) Allocable employee fringe benefit expenses
(A) In general
The allocable employee fringe benefit expenses of any
possession corporation for any taxable year is an amount which
bears the same ratio to the amount determined under
subparagraph (B) for such taxable year as -
(i) the aggregate amount of the possession corporation's
qualified possession wages for such taxable year, bears to
(ii) the aggregate amount of the wages paid or incurred by
such possession corporation during such taxable year.
In no event shall the amount determined under the preceding
sentence exceed 15 percent of the amount referred to in clause
(i).
(B) Expenses taken into account
For purposes of subparagraph (A), the amount determined under
this subparagraph for any taxable year is the aggregate amount
allowable as a deduction under this chapter to the possession
corporation for such taxable year with respect to -
(i) employer contributions under a stock bonus, pension,
profit-sharing, or annuity plan,
(ii) employer-provided coverage under any accident or
health plan for employees, and
(iii) the cost of life or disability insurance provided to
employees.
Any amount treated as wages under paragraph (1)(D) shall not be
taken into account under this subparagraph.
(3) Treatment of possession taxes
(A) Amount of credit for possession corporations not using
profit split
(i) In general
For purposes of subsection (a)(4)(A)(iii), the amount of
the qualified possession income taxes for any taxable year
allocable to nonsheltered income shall be an amount which
bears the same ratio to the possession income taxes for such
taxable year as -
(I) the increase in the tax liability of the possession
corporation under this chapter for the taxable year by
reason of subsection (a)(4)(A) (without regard to clause
(iii) thereof), bears to
(II) the tax liability of the possession corporation
under this chapter for the taxable year determined without
regard to the credit allowable under this section.
(ii) Limitation on amount of taxes taken into account
Possession income taxes shall not be taken into account
under clause (i) for any taxable year to the extent that the
amount of such taxes exceeds 9 percent of the amount of the
taxable income for such taxable year.
(B) Deduction for possession corporations using profit split
Notwithstanding subsection (c), if a possession corporation
is not described in subsection (a)(4)(A)(iii) for the taxable
year, such possession corporation shall be allowed a deduction
for such taxable year in an amount which bears the same ratio
to the possession income taxes for such taxable year as -
(i) the increase in the tax liability of the possession
corporation under this chapter for the taxable year by reason
of subsection (a)(4)(A), bears to
(ii) the tax liability of the possession corporation under
this chapter for the taxable year determined without regard
to the credit allowable under this section.
In determining the credit under subsection (a) and in applying
the preceding sentence, taxable income shall be determined
without regard to the preceding sentence.
(C) Possession income taxes
For purposes of this paragraph, the term "possession income
taxes" means any taxes of a possession of the United States
which are treated as not being income, war profits, or excess
profits taxes paid or accrued to a possession of the United
States by reason of subsection (c).
(4) Depreciation rules
For purposes of this section -
(A) Depreciation allowances
The term "depreciation allowances" means the depreciation
deductions allowable under section 167 to the possession
corporation.
(B) Categories of property
(i) Qualified tangible property
The term "qualified tangible property" means any tangible
property used by the possession corporation in a possession
of the United States in the active conduct of a trade or
business within such possession.
(ii) Short-life qualified tangible property
The term "short-life qualified tangible property" means any
qualified tangible property to which section 168 applies and
which is 3-year property or 5-year property for purposes of
such section.
(iii) Medium-life qualified tangible property
The term "medium-life qualified tangible property" means
any qualified tangible property to which section 168 applies
and which is 7-year property or 10-year property for purposes
of such section.
(iv) Long-life qualified tangible property
The term "long-life qualified tangible property" means any
qualified tangible property to which section 168 applies and
which is not described in clause (ii) or (iii).
(v) Transitional rule
In the case of any qualified tangible property to which
section 168 (as in effect on the day before the date of the
enactment of the Tax Reform Act of 1986) applies, any
reference in this paragraph to section 168 shall be treated
as a reference to such section as so in effect.
(5) Election to compute credit on consolidated basis
(A) In general
Any affiliated group may elect to treat all possession
corporations which would be members of such group but for
section 1504(b)(3) or (4) as 1 corporation for purposes of this
section. The credit determined under this section with respect
to such 1 corporation shall be allocated among such possession
corporations in such manner as the Secretary may prescribe.
(B) Election
An election under subparagraph (A) shall apply to the taxable
year for which made and all succeeding taxable years unless
revoked with the consent of the Secretary.
(6) Possession corporation
The term "possession corporation" means a domestic corporation
for which the election provided in subsection (a) is in effect.
(j) Termination
(1) In general
Except as otherwise provided in this subsection, this section
shall not apply to any taxable year beginning after December 31,
1995.
(2) Transition rules for active business income credit
Except as provided in paragraph (3) -
(A) Economic activity credit
In the case of an existing credit claimant -
(i) with respect to a possession other than Puerto Rico,
and
(ii) to which subsection (a)(4)(B) does not apply,
the credit determined under subsection (a)(1)(A) shall be
allowed for taxable years beginning after December 31, 1995,
and before January 1, 2002.
(B) Special rule for reduced credit
(i) In general
In the case of an existing credit claimant to which
subsection (a)(4)(B) applies, the credit determined under
subsection (a)(1)(A) shall be allowed for taxable years
beginning after December 31, 1995, and before January 1,
1998.
(ii) Election irrevocable after 1997
An election under subsection (a)(4)(B)(iii) which is in
effect for the taxpayer's last taxable year beginning before
1997 may not be revoked unless it is revoked for the
taxpayer's first taxable year beginning in 1997 and all
subsequent taxable years.
(C) Economic activity credit for Puerto Rico
For economic activity credit for Puerto Rico, see section
30A.
(3) Additional restricted credit
(A) In general
In the case of an existing credit claimant -
(i) the credit under subsection (a)(1)(A) shall be allowed
for the period beginning with the first taxable year after
the last taxable year to which subparagraph (A) or (B) of
paragraph (2), whichever is appropriate, applied and ending
with the last taxable year beginning before January 1, 2006,
except that
(ii) the aggregate amount of taxable income taken into
account under subsection (a)(1)(A) for any such taxable year
shall not exceed the adjusted base period income of such
claimant.
(B) Coordination with subsection (a)(4)
The amount of income described in subsection (a)(1)(A) which
is taken into account in applying subsection (a)(4) shall be
such income as reduced under this paragraph.
(4) Adjusted base period income
For purposes of paragraph (3) -
(A) In general
The term "adjusted base period income" means the average of
the inflation-adjusted possession incomes of the corporation
for each base period year.
(B) Inflation-adjusted possession income
For purposes of subparagraph (A), the inflation-adjusted
possession income of any corporation for any base period year
shall be an amount equal to the sum of -
(i) the possession income of such corporation for such base
period year, plus
(ii) such possession income multiplied by the inflation
adjustment percentage for such base period year.
(C) Inflation adjustment percentage
For purposes of subparagraph (B), the inflation adjustment
percentage for any base period year means the percentage (if
any) by which -
(i) the CPI for 1995, exceeds
(ii) the CPI for the calendar year in which the base period
year for which the determination is being made ends.
For purposes of the preceding sentence, the CPI for any
calendar year is the CPI (as defined in section 1(f)(5)) for
such year under section 1(f)(4).
(D) Increase in inflation adjustment percentage for growth
during base years
The inflation adjustment percentage (determined under
subparagraph (C) without regard to this subparagraph) for each
of the 5 taxable years referred to in paragraph (5)(A) shall be
increased by -
(i) 5 percentage points in the case of a taxable year
ending during the 1-year period ending on October 13, 1995;
(ii) 10.25 percentage points in the case of a taxable year
ending during the 1-year period ending on October 13, 1994;
(iii) 15.76 percentage points in the case of a taxable year
ending during the 1-year period ending on October 13, 1993;
(iv) 21.55 percentage points in the case of a taxable year
ending during the 1-year period ending on October 13, 1992;
and
(v) 27.63 percentage points in the case of a taxable year
ending during the 1-year period ending on October 13, 1991.
(5) Base period year
For purposes of this subsection -
(A) In general
The term "base period year" means each of 3 taxable years
which are among the 5 most recent taxable years of the
corporation ending before October 14, 1995, determined by
disregarding -
(i) one taxable year for which the corporation had the
largest inflation-adjusted possession income, and
(ii) one taxable year for which the corporation had the
smallest inflation-adjusted possession income.
(B) Corporations not having significant possession income
throughout 5-year period
(i) In general
If a corporation does not have significant possession
income for each of the most recent 5 taxable years ending
before October 14, 1995, then, in lieu of applying
subparagraph (A), the term "base period year" means only
those taxable years (of such 5 taxable years) for which the
corporation has significant possession income; except that,
if such corporation has significant possession income for 4
of such 5 taxable years, the rule of subparagraph (A)(ii)
shall apply.
(ii) Special rule
If there is no year (of such 5 taxable years) for which a
corporation has significant possession income -
(I) the term "base period year" means the first taxable
year ending on or after October 14, 1995, but
(II) the amount of possession income for such year which
is taken into account under paragraph (4) shall be the
amount which would be determined if such year were a short
taxable year ending on September 30, 1995.
(iii) Significant possession income
For purposes of this subparagraph, the term "significant
possession income" means possession income which exceeds 2
percent of the possession income of the taxpayer for the
taxable year (of the period of 6 taxable years ending with
the first taxable year ending on or after October 14, 1995)
having the greatest possession income.
(C) Election to use one base period year
(i) In general
At the election of the taxpayer, the term "base period
year" means -
(I) only the last taxable year of the corporation ending
in calendar year 1992, or
(II) a deemed taxable year which includes the first ten
months of calendar year 1995.
(ii) Base period income for 1995
In determining the adjusted base period income of the
corporation for the deemed taxable year under clause (i)(II),
the possession income shall be annualized and shall be
determined without regard to any extraordinary item.
(iii) Election
An election under this subparagraph by any possession
corporation may be made only for the corporation's first
taxable year beginning after December 31, 1995, for which it
is a possession corporation. The rules of subclauses (II) and
(III) of subsection (a)(4)(B)(iii) shall apply to the
election under this subparagraph.
(D) Acquisitions and dispositions
Rules similar to the rules of subparagraphs (A) and (B) of
section 41(f)(3) shall apply for purposes of this subsection.
(6) Possession income
For purposes of this subsection, the term "possession income"
means, with respect to any possession, the income referred to in
subsection (a)(1)(A) determined with respect to that possession.
In no event shall possession income be treated as being less than
zero.
(7) Short years
If the current year or a base period year is a short taxable
year, the application of this subsection shall be made with such
annualizations as the Secretary shall prescribe.
(8) Special rules for certain possessions
(A) In general
In the case of an existing credit claimant with respect to an
applicable possession, this section (other than the preceding
paragraphs of this subsection) shall apply to such claimant
with respect to such applicable possession for taxable years
beginning after December 31, 1995, and before January 1, 2006.
(B) Applicable possession
For purposes of this paragraph, the term "applicable
possession" means Guam, American Samoa, and the Commonwealth of
the Northern Mariana Islands.
(9) Existing credit claimant
For purposes of this subsection -
(A) In general
The term "existing credit claimant" means a corporation -
(i)(I) which was actively conducting a trade or business in
a possession on October 13, 1995, and
(II) with respect to which an election under this section
is in effect for the corporation's taxable year which
includes October 13, 1995, or
(ii) which acquired all of the assets of a trade or
business of a corporation which -
(I) satisfied the requirements of subclause (I) of clause
(i) with respect to such trade or business, and
(II) satisfied the requirements of subclause (II) of
clause (i).
(B) New lines of business prohibited
If, after October 13, 1995, a corporation which would (but
for this subparagraph) be an existing credit claimant adds a
substantial new line of business (other than in an acquisition
described in subparagraph (A)(ii)), such corporation shall
cease to be treated as an existing credit claimant as of the
close of the taxable year ending before the date of such
addition.
(C) Binding contract exception
If, on October 13, 1995, and at all times thereafter, there
is in effect with respect to a corporation a binding contract
for the acquisition of assets to be used in, or for the sale of
assets to be produced from, a trade or business, the
corporation shall be treated for purposes of this paragraph as
actively conducting such trade or business on October 13, 1995.
The preceding sentence shall not apply if such trade or
business is not actively conducted before January 1, 1996.
(10) Separate application to each possession
For purposes of determining -
(A) whether a taxpayer is an existing credit claimant, and
(B) the amount of the credit allowed under this section,
this subsection (and so much of this section as relates to this
subsection) shall be applied separately with respect to each
possession.
-SOURCE-
(Added Pub. L. 94-455, title X, Sec. 1051(b), Oct. 4, 1976, 90
Stat. 1643; amended Pub. L. 94-455, title XIX, Sec. 1901(b)(37)(B),
Oct. 4, 1976, 90 Stat. 1803; Pub. L. 95-600, title VII, Sec.
701(u)(11)(A), (B), Nov. 6, 1978, 92 Stat. 2917; Pub. L. 97-248,
title II, Sec. 201(d)(8)(B), formerly Sec. 201(c)(8)(B), Sec.
213(a), Sept. 3, 1982, 96 Stat. 420, 452, renumbered Sec.
201(d)(8)(B), Pub. L. 97-448, title III, Sec. 306(a)(1)(A)(i), Jan.
12, 1983, 96 Stat. 2400; Pub. L. 98-369, div. A, title IV, Sec.
474(r)(22), title VII, Sec. 712(g), title VIII, Sec. 801(d)(11),
July 18, 1984, 98 Stat. 843, 947, 997; Pub. L. 99-499, title V,
Sec. 516(b)(1)(B), Oct. 17, 1986, 100 Stat. 1770; Pub. L. 99-514,
title II, Sec. 231(d)(3)(G), title VII, Sec. 701(e)(4)(I), title
XII, Secs. 1231(a)-(d), (f), 1275(a)(1), title XVIII, Sec.
1812(c)(4)(C), Oct. 22, 1986, 100 Stat. 2179, 2343, 2561-2563,
2598, 2835; Pub. L. 100-647, title I, Secs. 1002(h)(3),
1012(h)(2)(B), (j), (n)(4), (5), title VI, Sec. 6132(a), Nov. 10,
1988, 102 Stat. 3370, 3502, 3512, 3515, 3721; Pub. L. 101-382,
title II, Sec. 227(a), Aug. 20, 1990, 104 Stat. 661; Pub. L.
101-508, title XI, Sec. 11704(a)(11), Nov. 5, 1990, 104 Stat.
1388-518; Pub. L. 103-66, title XIII, Sec. 13227(a), (b), Aug. 10,
1993, 107 Stat. 489, 490; Pub. L. 104-188, title I, Secs. 1601(a),
1704(t)(37), (80), Aug. 20, 1996, 110 Stat. 1827, 1889, 1891.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsecs. (d)(3)(B) and (i)(4)(B)(v), is the date of enactment
of Pub. L. 99-514, which was approved Oct. 22, 1986.
The Caribbean Basin Economic Recovery Act, referred to in subsec.
(d)(4)(A)(i), (B), is title II of Pub. L. 98-67, Aug. 5, 1983, 97
Stat. 384, which is classified principally to chapter 15 (Sec. 2701
et seq.) of Title 19, Customs Duties. Section 212 of that Act is
classified to section 2702 of Title 19. For complete classification
of this Act to the Code, see Short Title note set out under section
2701 of Title 19 and Tables.
The date of the enactment of this subparagraph, referred to in
subsec. (h)(3)(A), means the date of enactment of Pub. L. 97-248,
which was approved Sept. 3, 1982.
The date of the enactment of this clause, referred to in subsec.
(h)(5)(B)(iii)(I), (iv), means the date of enactment of Pub. L.
97-248, which was approved Sept. 3, 1982.
Section 230 of the Social Security Act, referred to in subsec.
(i)(1)(B)(i), is classified to section 430 of Title 42, The Public
Health and Welfare.
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(4)(A)(ii)(I). Pub. L. 104-188, Sec.
1704(t)(80), which directed that subcl. (I) be amended by
substituting "depreciation" for "deprecation", could not be
executed, because the word "deprecation" did not appear in text.
Subsec. (b). Pub. L. 104-188, Sec. 1704(t)(37), substituted
"subparagraphs (D)(ii)" for "subparagraphs (D)(ii)(I)".
Subsec. (j). Pub. L. 104-188, Sec. 1601(a), added subsec. (j).
1993 - Subsec. (a)(1). Pub. L. 103-66, Sec. 13227(a)(1),
substituted "Except as otherwise provided in this section" for
"Except as provided in paragraph (3)".
Subsec. (a)(4). Pub. L. 103-66, Sec. 13227(a)(2), added par. (4).
Subsec. (i). Pub. L. 103-66, Sec. 13227(b), added subsec. (i).
1990 - Subsec. (d)(4)(D). Pub. L. 101-382 added subpar. (D).
Subsec. (e)(1). Pub. L. 101-508 substituted "subsection (a)(2)"
for "subsection (a)(1)" wherever appearing.
1988 - Subsec. (d)(3)(B). Pub. L. 100-647, Sec. 1012(j), inserted
"(as in effect on the day before the date of the enactment of the
Tax Reform Act of 1986)" after "section 957(c)".
Subsec. (d)(4)(A)(ii). Pub. L. 100-647, Sec. 1012(n)(5)(A),
amended cl. (ii) generally. Prior to amendment, cl. (ii) read as
follows: "in accordance with a specific authorization granted by
the Government Development Bank for Puerto Rico pursuant to
regulations issued by the Secretary of the Treasury of Puerto
Rico."
Subsec. (d)(4)(B). Pub. L. 100-647, Sec. 6132(a), inserted "and
the Virgin Islands" after "274(h)(6)(A)".
Subsec. (d)(4)(C)(i), (ii). Pub. L. 100-647, Sec. 1012(n)(5)(B),
substituted "Commissioner of Financial Institutions of Puerto Rico"
for "Secretary of the Treasury of Puerto Rico".
Subsec. (h)(5)(C)(i)(I). Pub. L. 100-647, Sec. 1012(n)(4),
amended directory language of Pub. L. 99-514, Sec. 1231(a)(1), see
1986 Amendment note below.
Subsec. (h)(5)(C)(i)(IV)(c). Pub. L. 100-647, Sec. 1002(h)(3),
substituted "section 41" and "section 41(f)" for "section 30" and
"section 30(f)", respectively.
Subsec. (h)(7), (8). Pub. L. 100-647, Sec. 1012(h)(2)(B), added
par. (7) and redesignated former par. (7) as (8).
1986 - Subsec. (a)(2)(B). Pub. L. 99-514, Sec. 1231(d)(1),
substituted "75 percent" for "65 percent".
Subsec. (a)(2)(C). Pub. L. 99-514, Sec. 1231(d)(2), struck out
subpar. (C), transitional rule, which read as follows: "In applying
subparagraph (B) with respect to taxable years beginning after
December 31, 1982, and before January 1, 1985, the following
percentage shall be substituted for '65 percent':
"For taxable years beginning
in calendar year: The percentage
is:
1983 55
1984 60."
Subsec. (a)(3). Pub. L. 99-499 in par. (3), as amended by Pub. L.
99-514, added subpar. (A) and redesignated former subpars. (A) to
(C) as (B) to (D), respectively.
Pub. L. 99-514, Sec. 701(e)(4)(I), struck out subpar. (A) which
read "section 56 (relating to corporate minimum tax),", and
redesignated subpars. (B), (C), and (E) as (A), (B), and (C),
respectively.
Subsec. (b). Pub. L. 99-514, Sec. 1231(b), inserted at end "This
subsection shall not apply to any amount described in subsection
(a)(1)(A)(i) received from a person who is not a related person
(within the meaning of subsection (h)(3) but without regard to
subparagraphs (D)(ii)(I) and (E)(i) thereof) with respect to the
domestic corporation."
Subsec. (d)(1). Pub. L. 99-514, Sec. 1275(a)(1), substituted "and
the Virgin Islands" for ", but does not include the Virgin Islands
of the United States".
Subsec. (d)(4). Pub. L. 99-514, Sec. 1231(c), added par. (4).
Subsec. (h)(3)(D)(ii). Pub. L. 99-514, Sec. 1812(c)(4)(C),
amended cl. (ii) generally. Prior to amendment, cl. (ii), special
rules, read as follows: "For purposes of clause (i) -
"(I) section 267(b) and section 707(b)(1) shall be applied by
substituting '10 percent' for '50 percent', and
"(II) section 267(b)(3) shall be applied without regard to
whether a person was a personal holding company or a foreign
personal holding company."
Subsec. (h)(5)(C)(i)(I). Pub. L. 99-514, Sec. 1231(a)(1), as
amended by Pub. L. 100-647, Sec. 1012(n)(4), in introductory
provisions, substituted "the same proportion of 110 percent of the
cost" for "the same proportion of the cost", and inserted at end of
material relating to payment of cost sharing "In the case of
intangible property described in subsection (h)(3)(B)(i) which the
electing corporation is treated as owning under subclause (II), in
no event shall the payment required under this subclause be less
than the inclusion or payment which would be required under section
367(d)(2)(A)(ii) or section 482 if the electing corporation were a
foreign corporation."
Subsec. (h)(5)(C)(i)(I)(a). Pub. L. 99-514, Sec. 231(d)(3)(G),
substituted "section 41(b)" for "section 30(b)".
Subsec. (h)(5)(C)(ii)(II). Pub. L. 99-514, Sec. 1231(f),
substituted "all products and types of services, within such
product area, produced or rendered" for "all products produced and
types of service rendered".
Pub. L. 99-514, Sec. 1231(a)(2), substituted "the third and
fourth sentences thereof, but substituting '120 percent' for '110
percent' in the second sentence thereof)" for "the third sentence
thereof)".
1984 - Subsec. (a)(2)(C). Pub. L. 98-369, Sec. 712(g),
substituted in table heading "The percentage is" for "The
percentage tax is".
Subsec. (f). Pub. L. 98-369, Sec. 801(d)(11), amended subsec. (f)
generally, substituting in heading "Limitation on credit for DISC's
and FSC's" for "DISC or former DISC corporation ineligible for
credit", and in text striking out reference to section 992(a) and
inserting provision disallowing a credit to a corporation for a
taxable year in which it owns at any time stock in a FSC or former
FSC.
Subsec. (h)(5)(C)(i)(I)(a). Pub. L. 98-369, Sec. 474(r)(22)(A),
substituted "section 30(b)" for "section 44F(b)".
Subsec. (h)(5)(C)(i)(IV)(c). Pub. L. 98-369, Sec. 474(r)(22)(B),
substituted "section 30" for "section 44F" and "section 30(f)" for
"section 44F(f)".
1982 - Subsec. (a)(2)(B). Pub. L. 97-248, Sec. 213(a)(1)(A),
substituted "65 percent" for "50 percent".
Subsec. (a)(2)(C). Pub. L. 97-248, Sec. 213(a)(1)(B), added
subpar. (C).
Subsec. (a)(3)(A). Pub. L. 97-248, Sec. 201(d)(8)(B), formerly
Sec. 201(c)(8)(B), substituted "(relating to corporate minimum
tax)" for "(relating to minimum tax)".
Subsec. (h). Pub. L. 97-248, Sec. 213(a)(2), added subsec. (h).
1978 - Subsec. (a). Pub. L. 95-600, Sec. 701(u)(11)(A), reworked
provisions of par. (1) into introductory text, substituting
reference to par. (3) for reference to par. (2), and subpars. (A)
and (B), inserted introductory text of par. (2), redesignated
former subpars. (A) and (B) of par. (1) as subpars. (A) and (B) of
par. (2), and redesignated former par. (2) as (3).
Subsec. (d). Pub. L. 95-600, Sec. 701(u)(11)(B), substituted in
heading "Definitions and special rules" for "Definitions" and added
par. (3).
1976 - Subsec. (a)(2)(D). Pub. L. 94-455, Sec. 1901(b)(37)(B),
struck out subpar. (D) relating to war loss recoveries.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1601(a) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1995, except as otherwise
provided, see section 1601(c) of Pub. L. 104-188, set out as an
Effective Date note under section 30A of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
after Dec. 31, 1993, see section 13227(f) of Pub. L. 103-66, set
out as a note under section 56 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 227(b) of Pub. L. 101-382 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
calendar years after 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1002(h)(3) and 1012(h)(2)(B), (j), (n)(4),
(5) of Pub. L. 100-647 effective, except as otherwise provided, as
if included in the provision of the Tax Reform Act of 1986, Pub. L.
99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.
Section 6132(b) of Pub. L. 100-647 provided that: "The amendment
made by this section [amending this section] shall apply to
investments made after the date of the enactment of this Act [Nov.
10, 1988]."
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 231(d)(3)(G) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1985, see section 231(g) of
Pub. L. 99-514, set out as a note under section 41 of this title.
Amendment by section 701(e)(4)(I) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
Section 1231(g) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(n)(1)-(3), Nov. 10, 1988, 102 Stat. 3514,
provided that:
"(1) In general. - Except as provided in paragraphs (2) and (3),
the amendments made by this section [amending this section and
sections 367 and 482 of this title] shall apply to taxable years
beginning after December 31, 1986.
"(2) Special rule for transfer of intangibles. -
"(A) In general. - The amendments made by subsection (e)
[amending sections 367 and 482 of this title] shall apply to
taxable years beginning after December 31, 1986, but only with
respect to transfers after November 16, 1985, or licenses granted
after such date (or before such date with respect to property not
in existence or owned by the taxpayer on such date). In the case
of any transfer (or license) which is not to a foreign person,
the preceding sentence shall be applied by substituting 'August
16, 1986' for 'November 16, 1985'.
"(B) Special rule for section 936. - For purposes of section
936(h)(5)(C) of the Internal Revenue Code of 1986 the amendments
made by subsection (e) shall apply to taxable years beginning
after December 31, 1986, without regard to when the transfer (or
license), if any, was made.
"(3) Subsection (f). - The amendment made by subsection (f)
[amending this section] shall apply to taxable years beginning
after December 31, 1982.
"(4) Transitional rule. - In the case of a corporation -
"(A) with respect to which an election under section 936 of the
Internal Revenue Code of 1986 (relating to possessions tax
credit) is in effect,
"(B) which produced an end-product form in Puerto Rico on or
before September 3, 1982,
"(C) which began manufacturing a component of such product in
Puerto Rico in its taxable year beginning in 1983, and
"(D) with respect to which a Puerto Rican tax exemption was
granted on June 27, 1983,
such corporation shall treat such component as a separate product
for such taxable year for purposes of determining whether such
corporation had a significant business presence in Puerto Rico with
respect to such product and its income with respect to such
product.
"(5) Transitional rule for increase in gross income test. -
"(A) In general. - If -
"(i) a corporation fails to meet the requirements of
subparagraph (B) of section 936(a)(2) of the Internal Revenue
Code of 1986 (as amended by subsection (d)(1)) for any taxable
year beginning in 1987 or 1988,
"(ii) such corporation would have met the requirements of
such subparagraph (B) if such subparagraph had been applied
without regard to the amendment made by subsection (d)(1), and
"(iii) 75 percent or more of the gross income of such
corporation for such taxable year (or, in the case of a taxable
year beginning in 1988, for the period consisting of such
taxable year and the preceding taxable year) was derived from
the active conduct of a trade or business within a possession
of the United States, such corporation shall nevertheless be
treated as meeting the requirements of such subparagraph (B)
for such taxable year if it elects to reduce the amount of the
qualified possession source investment income for the taxable
year by the amount of the shortfall determined under
subparagraph (B) of this paragraph.
"(B) Determination of shortfall. - The shortfall determined
under this subparagraph for any taxable year is an amount equal
to the excess of -
"(i) 75 percent of the gross income of the corporation for
the 3-year period (or part thereof) referred to in section
936(a)(2)(A) of such Code, over
"(ii) the amount of the gross income of such corporation for
such period (or part thereof) which was derived from the active
conduct of a trade or business within a possession of the
United States.
"(C) Special rule. - Any income attributable to the investment
of the amount not treated as qualified possession source
investment income under subparagraph (A) shall not be treated as
qualified possession source investment income for any taxable
year."
Amendment by section 1275(a)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
Amendment by section 1812(c)(4)(C) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
Amendment by Pub. L. 99-499 applicable to taxable years beginning
after Dec. 31, 1986, see section 516(c) of Pub. L. 99-499, set out
as a note under section 26 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(r)(22) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 712(g) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
Amendment by section 801(d)(11) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by section 201(d)(8)(B) of Pub. L. 97-248 applicable to
taxable years beginning after Dec. 31, 1982, see section 201(e)(1)
of Pub. L. 97-248, set out as a note under section 5 of this title.
Section 213(e) of Pub. L. 97-248, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as provided in paragraphs (2) and (3),
the amendments made by this section [amending this section and
sections 246, 367, and 934 of this title] shall apply to taxable
years beginning after December 31, 1982.
"(2) Certain sales made after july 1, 1982. - Paragraph (6) of
section 936(h) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954], and so much of section 934 to which such paragraph
applies by reason of section 934(e)(4) of such Code, shall apply to
taxable years ending after July 1, 1982.
"(3) Certain transfers of intangibles made after august 14, 1982.
- Subsection (d) [amending section 367 of this title] shall apply
to taxable years ending after August 14, 1982."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 701(u)(11)(C) of Pub. L. 95-600, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this paragraph [amending this section] shall
apply as if included in section 936 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] at the time of its addition by section
1051(b) of the Tax Reform Act of 1976 [Oct. 4, 1976]."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to 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
Section applicable to taxable years beginning after Dec. 31,
1975, except that qualified possession source investment income as
defined in subsec. (d)(2) of this section shall include income from
any source outside the United States if the taxpayer establishes to
the satisfaction of the Secretary of the Treasury or his delegate
that the income from such sources was earned before Oct. 1, 1976,
see section 1051(i) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 27 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(4)(I) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
REPORT ON POSSESSIONS CORPORATIONS
Section 441(a) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 100-647, title VI,
Sec. 6252(b)(1), Nov. 10, 1988, 102 Stat. 3752, which directed
Secretary of the Treasury to submit a report to Congress each
fourth calendar year on the operation and effect of sections 936
and 934(b) of this title, terminated, effective May 15, 2000,
pursuant to section 3003 of Pub. L. 104-66, as amended, set out as
a note under section 1113 of Title 31, Money and Finance. See,
also, page 142 of House Document No. 103-7.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 27, 30A, 45C, 55, 56, 59,
168, 243, 246, 338, 367, 482, 864, 865, 901, 904, 1202, 1298, 1361,
1504, 6654, 6655 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be "corporation's".
-End-
-CITE-
26 USC Subpart E - Qualifying Foreign Trade 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 III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart E - Qualifying Foreign Trade Income
-HEAD-
SUBPART E - QUALIFYING FOREIGN TRADE INCOME
-MISC1-
Sec.
941. Qualifying foreign trade income.
942. Foreign trading gross receipts.
943. Other definitions and special rules.
PRIOR PROVISIONS
A prior subpart E, consisting of sections 941 to 943 of this
title, related to China Trade Act corporations, prior to repeal by
Pub. L. 94-455, title X, Sec. 1053(c), (e), Oct. 4, 1976, 90 Stat.
1649, effective with respect to taxable years beginning after Dec.
31, 1977.
-SECREF-
SUBPART REFERRED TO IN OTHER SECTIONS
This subpart is referred to in section 114 of this title.
-End-
-CITE-
26 USC Sec. 941 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart E - Qualifying Foreign Trade Income
-HEAD-
Sec. 941. Qualifying foreign trade income
-STATUTE-
(a) Qualifying foreign trade income
For purposes of this subpart and section 114 -
(1) In general
The term "qualifying foreign trade income" means, with respect
to any transaction, the amount of gross income which, if
excluded, will result in a reduction of the taxable income of the
taxpayer from such transaction equal to the greatest of -
(A) 30 percent of the foreign sale and leasing income derived
by the taxpayer from such transaction,
(B) 1.2 percent of the foreign trading gross receipts derived
by the taxpayer from the transaction, or
(C) 15 percent of the foreign trade income derived by the
taxpayer from the transaction.
In no event shall the amount determined under subparagraph (B)
exceed 200 percent of the amount determined under subparagraph
(C).
(2) Alternative computation
A taxpayer may compute its qualifying foreign trade income
under a subparagraph of paragraph (1) other than the subparagraph
which results in the greatest amount of such income.
(3) Limitation on use of foreign trading gross receipts method
If any person computes its qualifying foreign trade income from
any transaction with respect to any property under paragraph
(1)(B), the qualifying foreign trade income of such person (or
any related person) with respect to any other transaction
involving such property shall be zero.
(4) Rules for marginal costing
The Secretary shall prescribe regulations setting forth rules
for the allocation of expenditures in computing foreign trade
income under paragraph (1)(C) in those cases where a taxpayer is
seeking to establish or maintain a market for qualifying foreign
trade property.
(5) Participation in international boycotts, etc.
Under regulations prescribed by the Secretary, the qualifying
foreign trade income of a taxpayer for any taxable year shall be
reduced (but not below zero) by the sum of -
(A) an amount equal to such income multiplied by the
international boycott factor determined under section 999, and
(B) any illegal bribe, kickback, or other payment (within the
meaning of section 162(c)) paid by or on behalf of the taxpayer
directly or indirectly to an official, employee, or agent in
fact of a government.
(b) Foreign trade income
For purposes of this subpart -
(1) In general
The term "foreign trade income" means the taxable income of the
taxpayer attributable to foreign trading gross receipts of the
taxpayer.
(2) Special rule for cooperatives
In any case in which an organization to which part I of
subchapter T applies which is engaged in the marketing of
agricultural or horticultural products sells qualifying foreign
trade property, in computing the taxable income of such
cooperative, there shall not be taken into account any deduction
allowable under subsection (b) or (c) of section 1382 (relating
to patronage dividends, per-unit retain allocations, and
nonpatronage distributions).
(c) Foreign sale and leasing income
For purposes of this section -
(1) In general
The term "foreign sale and leasing income" means, with respect
to any transaction -
(A) foreign trade income properly allocable to activities
which -
(i) are described in paragraph (2)(A)(i) or (3) of section
942(b), and
(ii) are performed by the taxpayer (or any person acting
under a contract with such taxpayer) outside the United
States, or
(B) foreign trade income derived by the taxpayer in
connection with the lease or rental of qualifying foreign trade
property for use by the lessee outside the United States.
(2) Special rules for leased property
(A) Sales income
The term "foreign sale and leasing income" includes any
foreign trade income derived by the taxpayer from the sale of
property described in paragraph (1)(B).
(B) Limitation in certain cases
Except as provided in regulations, in the case of property
which -
(i) was manufactured, produced, grown, or extracted by the
taxpayer, or
(ii) was acquired by the taxpayer from a related person for
a price which was not determined in accordance with the rules
of section 482,
the amount of foreign trade income which may be treated as
foreign sale and leasing income under paragraph (1)(B) or
subparagraph (A) of this paragraph with respect to any
transaction involving such property shall not exceed the amount
which would have been determined if the taxpayer had acquired
such property for the price determined in accordance with the
rules of section 482.
(3) Special rules
(A) Excluded property
Foreign sale and leasing income shall not include any income
properly allocable to excluded property described in
subparagraph (B) of section 943(a)(3) (relating to
intangibles).
(B) Only direct expenses taken into account
For purposes of this subsection, any expense other than a
directly allocable expense shall not be taken into account in
computing foreign trade income.
-SOURCE-
(Added Pub. L. 106-519, Sec. 3(b), Nov. 15, 2000, 114 Stat. 2424.)
-MISC1-
PRIOR PROVISIONS
A prior section 941, acts Aug. 16, 1954, ch. 736, 68A Stat. 293;
Oct. 4, 1976, Pub. L. 94-455, title X, Sec. 1053(a), title XIX,
Sec. 1906(b)(1)(A), 90 Stat. 1648, 1834, set forth provisions
authorizing special deduction for China Trade Act corporations,
prior to repeal by Pub. L. 94-455, title X, Sec. 1053(c), (e), Oct.
4, 1976, 90 Stat. 1649, effective with respect to taxable years
beginning after Dec. 31, 1977.
EFFECTIVE DATE
Pub. L. 106-519, Sec. 5, Nov. 15, 2000, 114 Stat. 2433, provided
that:
"(a) In General. - The amendments made by this Act [enacting this
section and sections 114, 942, and 943 of this title, amending
sections 56, 275, 864, 903, and 999 of this title, and repealing
sections 921 to 927 of this title] shall apply to transactions
after September 30, 2000.
"(b) No New FSCs; Termination of Inactive FSCs. -
"(1) No new fscs. - No corporation may elect after September
30, 2000, to be a FSC (as defined in section 922 of the Internal
Revenue Code of 1986, as in effect before the amendments made by
this Act).
"(2) Termination of inactive fscs. - If a FSC has no foreign
trade income (as defined in section 923(b) of such Code, as so in
effect) for any period of 5 consecutive taxable years beginning
after December 31, 2001, such FSC shall cease to be treated as a
FSC for purposes of such Code for any taxable year beginning
after such period.
"(c) Transition Period for Existing Foreign Sales Corporations. -
"(1) In general. - In the case of a FSC (as so defined) in
existence on September 30, 2000, and at all times thereafter, the
amendments made by this Act shall not apply to any transaction in
the ordinary course of trade or business involving a FSC which
occurs -
"(A) before January 1, 2002; or
"(B) after December 31, 2001, pursuant to a binding contract
-
"(i) which is between the FSC (or any related person) and
any person which is not a related person; and
"(ii) which is in effect on September 30, 2000, and at all
times thereafter.
For purposes of this paragraph, a binding contract shall include
a purchase option, renewal option, or replacement option which is
included in such contract and which is enforceable against the
seller or lessor.
"(2) Election to have amendments apply earlier. - A taxpayer
may elect to have the amendments made by this Act apply to any
transaction by a FSC or any related person to which such
amendments would apply but for the application of paragraph (1).
Such election shall be effective for the taxable year for which
made and all subsequent taxable years, and, once made, may be
revoked only with the consent of the Secretary of the Treasury.
"(3) Exception for old earnings and profits of certain
corporations. -
"(A) In general. - In the case of a foreign corporation to
which this paragraph applies -
"(i) earnings and profits of such corporation accumulated
in taxable years ending before October 1, 2000, shall not be
included in the gross income of the persons holding stock in
such corporation by reason of section 943(e)(4)(B)(i); and
"(ii) rules similar to the rules of clauses (ii), (iii),
and (iv) of section 953(d)(4)(B) shall apply with respect to
such earnings and profits.
The preceding sentence shall not apply to earnings and profits
acquired in a transaction after September 30, 2000, to which
section 381 applies unless the distributor or transferor
corporation was immediately before the transaction a foreign
corporation to which this paragraph applies.
"(B) Existing fscs. - This paragraph shall apply to any
controlled foreign corporation (as defined in section 957) if -
"(i) such corporation is a FSC (as so defined) in existence
on September 30, 2000;
"(ii) such corporation is eligible to make the election
under section 943(e) by reason of being described in
paragraph (2)(B) of such section; and
"(iii) such corporation makes such election not later than
for its first taxable year beginning after December 31, 2001.
"(C) Other corporations. - This paragraph shall apply to any
controlled foreign corporation (as defined in section 957), and
such corporation shall (notwithstanding any provision of
section 943(e)) be treated as an applicable foreign corporation
for purposes of section 943(e), if -
"(i) such corporation is in existence on September 30,
2000;
"(ii) as of such date, such corporation is wholly owned
(directly or indirectly) by a domestic corporation
(determined without regard to any election under section
943(e));
"(iii) for each of the 3 taxable years preceding the first
taxable year to which the election under section 943(e) by
such controlled foreign corporation applies -
"(I) all of the gross income of such corporation is subpart F
income (as defined in section 952), including by reason of
section 954(b)(3)(B); and
"(II) in the ordinary course of such corporation's trade or
business, such corporation regularly sold (or paid
commissions) to a FSC which on September 30, 2000, was a
related person to such corporation;
"(iv) such corporation has never made an election under
section 922(a)(2) (as in effect before the date of the
enactment of this paragraph [Nov. 15, 2000]) to be treated as
a FSC; and
"(v) such corporation makes the election under section
943(e) not later than for its first taxable year beginning
after December 31, 2001.
The preceding sentence shall cease to apply as of the date that
the domestic corporation referred to in clause (ii) ceases to
wholly own (directly or indirectly) such controlled foreign
corporation.
"(4) Related person. - For purposes of this subsection, the
term 'related person' has the meaning given to such term by
section 943(b)(3).
"(5) Section references. - Except as otherwise expressly
provided, any reference in this subsection to a section or other
provision shall be considered to be a reference to a section or
other provision of the Internal Revenue Code of 1986, as amended
by this Act.
"(d) Special Rules Relating to Leasing Transactions. -
"(1) Sales income. - If foreign trade income in connection with
the lease or rental of property described in section 927(a)(1)(B)
of such Code (as in effect before the amendments made by this
Act) is treated as exempt foreign trade income for purposes of
section 921(a) of such Code (as so in effect), such property
shall be treated as property described in section 941(c)(1)(B) of
such Code (as added by this Act) for purposes of applying section
941(c)(2) of such Code (as so added) to any subsequent
transaction involving such property to which the amendments made
by this Act apply.
"(2) Limitation on use of gross receipts method. - If any
person computed its foreign trade income from any transaction
with respect to any property on the basis of a transfer price
determined under the method described in section 925(a)(1) of
such Code (as in effect before the amendments made by this Act),
then the qualifying foreign trade income (as defined in section
941(a) of such Code, as in effect after such amendment) of such
person (or any related person) with respect to any other
transaction involving such property (and to which the amendments
made by this Act apply) shall be zero."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 275, 943, 999 of this
title.
-End-
-CITE-
26 USC Sec. 942 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart E - Qualifying Foreign Trade Income
-HEAD-
Sec. 942. Foreign trading gross receipts
-STATUTE-
(a) Foreign trading gross receipts
(1) In general
Except as otherwise provided in this section, for purposes of
this subpart, the term "foreign trading gross receipts" means the
gross receipts of the taxpayer which are -
(A) from the sale, exchange, or other disposition of
qualifying foreign trade property,
(B) from the lease or rental of qualifying foreign trade
property for use by the lessee outside the United States,
(C) for services which are related and subsidiary to -
(i) any sale, exchange, or other disposition of qualifying
foreign trade property by such taxpayer, or
(ii) any lease or rental of qualifying foreign trade
property described in subparagraph (B) by such taxpayer,
(D) for engineering or architectural services for
construction projects located (or proposed for location)
outside the United States, or
(E) for the performance of managerial services for a person
other than a related person in furtherance of the production of
foreign trading gross receipts described in subparagraph (A),
(B), or (C).
Subparagraph (E) shall not apply to a taxpayer for any taxable
year unless at least 50 percent of its foreign trading gross
receipts (determined without regard to this sentence) for such
taxable year is derived from activities described in subparagraph
(A), (B), or (C).
(2) Certain receipts excluded on basis of use; subsidized
receipts excluded
The term "foreign trading gross receipts" shall not include
receipts of a taxpayer from a transaction if -
(A) the qualifying foreign trade property or services -
(i) are for ultimate use in the United States, or
(ii) are for use by the United States or any
instrumentality thereof and such use of qualifying foreign
trade property or services is required by law or regulation,
or
(B) such transaction is accomplished by a subsidy granted by
the government (or any instrumentality thereof) of the country
or possession in which the property is manufactured, produced,
grown, or extracted.
(3) Election to exclude certain receipts
The term "foreign trading gross receipts" shall not include
gross receipts of a taxpayer from a transaction if the taxpayer
elects not to have such receipts taken into account for purposes
of this subpart.
(b) Foreign economic process requirements
(1) In general
Except as provided in subsection (c), a taxpayer shall be
treated as having foreign trading gross receipts from any
transaction only if economic processes with respect to such
transaction take place outside the United States as required by
paragraph (2).
(2) Requirement
(A) In general
The requirements of this paragraph are met with respect to
the gross receipts of a taxpayer derived from any transaction
if -
(i) such taxpayer (or any person acting under a contract
with such taxpayer) has participated outside the United
States in the solicitation (other than advertising), the
negotiation, or the making of the contract relating to such
transaction, and
(ii) the foreign direct costs incurred by the taxpayer
attributable to the transaction equal or exceed 50 percent of
the total direct costs attributable to the transaction.
(B) Alternative 85-percent test
A taxpayer shall be treated as satisfying the requirements of
subparagraph (A)(ii) with respect to any transaction if, with
respect to each of at least two subparagraphs of paragraph (3),
the foreign direct costs incurred by such taxpayer attributable
to activities described in such subparagraph equal or exceed 85
percent of the total direct costs attributable to activities
described in such subparagraph.
(C) Definitions
For purposes of this paragraph -
(i) Total direct costs
The term "total direct costs" means, with respect to any
transaction, the total direct costs incurred by the taxpayer
attributable to activities described in paragraph (3)
performed at any location by the taxpayer or any person
acting under a contract with such taxpayer.
(ii) Foreign direct costs
The term "foreign direct costs" means, with respect to any
transaction, the portion of the total direct costs which are
attributable to activities performed outside the United
States.
(3) Activities relating to qualifying foreign trade property
The activities described in this paragraph are any of the
following with respect to qualifying foreign trade property -
(A) advertising and sales promotion,
(B) the processing of customer orders and the arranging for
delivery,
(C) transportation outside the United States in connection
with delivery to the customer,
(D) the determination and transmittal of a final invoice or
statement of account or the receipt of payment, and
(E) the assumption of credit risk.
(4) Economic processes performed by related persons
A taxpayer shall be treated as meeting the requirements of this
subsection with respect to any sales transaction involving any
property if any related person has met such requirements in such
transaction or any other sales transaction involving such
property.
(c) Exception from foreign economic process requirement
(1) In general
The requirements of subsection (b) shall be treated as met for
any taxable year if the foreign trading gross receipts of the
taxpayer for such year do not exceed $5,000,000.
(2) Receipts of related persons aggregated
All related persons shall be treated as one person for purposes
of paragraph (1), and the limitation under paragraph (1) shall be
allocated among such persons in a manner provided in regulations
prescribed by the Secretary.
(3) Special rule for pass-thru entities
In the case of a partnership, S corporation, or other pass-thru
entity, the limitation under paragraph (1) shall apply with
respect to the partnership, S corporation, or entity and with
respect to each partner, shareholder, or other owner.
-SOURCE-
(Added Pub. L. 106-519, Sec. 3(b), Nov. 15, 2000, 114 Stat. 2426.)
-MISC1-
PRIOR PROVISIONS
A prior section 942, act Aug. 16, 1954, ch. 736, 68A Stat. 294,
disallowed foreign tax credit authorized by section 901 to any
corporation organized under the China Trade Act, prior to repeal by
Pub. L. 94-455, title X, Sec. 1053(c), (e), Oct. 4, 1976, 90 Stat.
1649, effective with respect to taxable years beginning after Dec.
31, 1977.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 114, 941, 943 of this
title.
-End-
-CITE-
26 USC Sec. 943 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart E - Qualifying Foreign Trade Income
-HEAD-
Sec. 943. Other definitions and special rules
-STATUTE-
(a) Qualifying foreign trade property
For purposes of this subpart -
(1) In general
The term "qualifying foreign trade property" means property -
(A) manufactured, produced, grown, or extracted within or
outside the United States,
(B) held primarily for sale, lease, or rental, in the
ordinary course of trade or business for direct use,
consumption, or disposition outside the United States, and
(C) not more than 50 percent of the fair market value of
which is attributable to -
(i) articles manufactured, produced, grown, or extracted
outside the United States, and
(ii) direct costs for labor (determined under the
principles of section 263A) performed outside the United
States.
For purposes of subparagraph (C), the fair market value of any
article imported into the United States shall be its appraised
value, as determined by the Secretary under section 402 of the
Tariff Act of 1930 (19 U.S.C. 1401a) in connection with its
importation, and the direct costs for labor under clause (ii) do
not include costs that would be treated under the principles of
section 263A as direct labor costs attributable to articles
described in clause (i).
(2) U.S. taxation to ensure consistent treatment
Property which (without regard to this paragraph) is qualifying
foreign trade property and which is manufactured, produced,
grown, or extracted outside the United States shall be treated as
qualifying foreign trade property only if it is manufactured,
produced, grown, or extracted by -
(A) a domestic corporation,
(B) an individual who is a citizen or resident of the United
States,
(C) a foreign corporation with respect to which an election
under subsection (e) (relating to foreign corporations electing
to be subject to United States taxation) is in effect, or
(D) a partnership or other pass-thru entity all of the
partners or owners of which are described in subparagraph (A),
(B), or (C).
Except as otherwise provided by the Secretary, tiered
partnerships or pass-thru entities shall be treated as described
in subparagraph (D) if each of the partnerships or entities is
directly or indirectly wholly owned by persons described in
subparagraph (A), (B), or (C).
(3) Excluded property
The term "qualifying foreign trade property" shall not include
-
(A) property leased or rented by the taxpayer for use by any
related person,
(B) patents, inventions, models, designs, formulas, or
processes whether or not patented, copyrights (other than
films, tapes, records, or similar reproductions, and other than
computer software (whether or not patented), for commercial or
home use), goodwill, trademarks, trade brands, franchises, or
other like property,
(C) oil or gas (or any primary product thereof),
(D) products the transfer of which is prohibited or curtailed
to effectuate the policy set forth in paragraph (2)(C) of
section 3 of Public Law 96-72, or
(E) any unprocessed timber which is a softwood.
For purposes of subparagraph (E), the term "unprocessed timber"
means any log, cant, or similar form of timber.
(4) Property in short supply
If the President determines that the supply of any property
described in paragraph (1) is insufficient to meet the
requirements of the domestic economy, the President may by
Executive order designate the property as in short supply. Any
property so designated shall not be treated as qualifying foreign
trade property during the period beginning with the date
specified in the Executive order and ending with the date
specified in an Executive order setting forth the President's
determination that the property is no longer in short supply.
(b) Other definitions and rules
For purposes of this subpart -
(1) Transaction
(A) In general
The term "transaction" means -
(i) any sale, exchange, or other disposition,
(ii) any lease or rental, and
(iii) any furnishing of services.
(B) Grouping of transactions
To the extent provided in regulations, any provision of this
subpart which, but for this subparagraph, would be applied on a
transaction-by-transaction basis may be applied by the taxpayer
on the basis of groups of transactions based on product lines
or recognized industry or trade usage. Such regulations may
permit different groupings for different purposes.
(2) United States defined
The term "United States" includes the Commonwealth of Puerto
Rico. The preceding sentence shall not apply for purposes of
determining whether a corporation is a domestic corporation.
(3) Related person
A person shall be related to another person if such persons are
treated as a single employer under subsection (a) or (b) of
section 52 or subsection (m) or (o) of section 414, except that
determinations under subsections (a) and (b) of section 52 shall
be made without regard to section 1563(b).
(4) Gross and taxable income
Section 114 shall not be taken into account in determining the
amount of gross income or foreign trade income from any
transaction.
(c) Source rule
Under regulations, in the case of qualifying foreign trade
property manufactured, produced, grown, or extracted within the
United States, the amount of income of a taxpayer from any sales
transaction with respect to such property which is treated as from
sources without the United States shall not exceed -
(1) in the case of a taxpayer computing its qualifying foreign
trade income under section 941(a)(1)(B), the amount of the
taxpayer's foreign trade income which would (but for this
subsection) be treated as from sources without the United States
if the foreign trade income were reduced by an amount equal to 4
percent of the foreign trading gross receipts with respect to the
transaction, and
(2) in the case of a taxpayer computing its qualifying foreign
trade income under section 941(a)(1)(C), 50 percent of the amount
of the taxpayer's foreign trade income which would (but for this
subsection) be treated as from sources without the United States.
(d) Treatment of withholding taxes
(1) In general
For purposes of section 114(d), any withholding tax shall not
be treated as paid or accrued with respect to extraterritorial
income which is excluded from gross income under section 114(a).
For purposes of this paragraph, the term "withholding tax" means
any tax which is imposed on a basis other than residence and for
which credit is allowable under section 901 or 903.
(2) Exception
Paragraph (1) shall not apply to any taxpayer with respect to
extraterritorial income from any transaction if the taxpayer
computes its qualifying foreign trade income with respect to the
transaction under section 941(a)(1)(A).
(e) Election to be treated as domestic corporation
(1) In general
An applicable foreign corporation may elect to be treated as a
domestic corporation for all purposes of this title if such
corporation waives all benefits to such corporation granted by
the United States under any treaty. No election under section
1362(a) may be made with respect to such corporation.
(2) Applicable foreign corporation
For purposes of paragraph (1), the term "applicable foreign
corporation" means any foreign corporation if -
(A) such corporation manufactures, produces, grows, or
extracts property in the ordinary course of such corporation's
trade or business, or
(B) substantially all of the gross receipts of such
corporation are foreign trading gross receipts.
(3) Period of election
(A) In general
Except as otherwise provided in this paragraph, an election
under paragraph (1) shall apply to the taxable year for which
made and all subsequent taxable years unless revoked by the
taxpayer. Any revocation of such election shall apply to
taxable years beginning after such revocation.
(B) Termination
If a corporation which made an election under paragraph (1)
for any taxable year fails to meet the requirements of
subparagraph (A) or (B) of paragraph (2) for any subsequent
taxable year, such election shall not apply to any taxable year
beginning after such subsequent taxable year.
(C) Effect of revocation or termination
If a corporation which made an election under paragraph (1)
revokes such election or such election is terminated under
subparagraph (B), such corporation (and any successor
corporation) may not make such election for any of the 5
taxable years beginning with the first taxable year for which
such election is not in effect as a result of such revocation
or termination.
(4) Special rules
(A) Requirements
This subsection shall not apply to an applicable foreign
corporation if such corporation fails to meet the requirements
(if any) which the Secretary may prescribe to ensure that the
taxes imposed by this chapter on such corporation are paid.
(B) Effect of election, revocation, and termination
(i) Election
For purposes of section 367, a foreign corporation making
an election under this subsection shall be treated as
transferring (as of the first day of the first taxable year
to which the election applies) all of its assets to a
domestic corporation in connection with an exchange to which
section 354 applies.
(ii) Revocation and termination
For purposes of section 367, if -
(I) an election is made by a corporation under paragraph
(1) for any taxable year, and
(II) such election ceases to apply for any subsequent
taxable year,
such corporation shall be treated as a domestic corporation
transferring (as of the 1st day of the first such subsequent
taxable year to which such election ceases to apply) all of its
property to a foreign corporation in connection with an
exchange to which section 354 applies.
(C) Eligibility for election
The Secretary may by regulation designate one or more classes
of corporations which may not make the election under this
subsection.
(f) Rules relating to allocations of qualifying foreign trade
income from shared partnerships
(1) In general
If -
(A) a partnership maintains a separate account for
transactions (to which this subpart applies) with each partner,
(B) distributions to each partner with respect to such
transactions are based on the amounts in the separate account
maintained with respect to such partner, and
(C) such partnership meets such other requirements as the
Secretary may by regulations prescribe,
then such partnership shall allocate to each partner items of
income, gain, loss, and deduction (including qualifying foreign
trade income) from any transaction to which this subpart applies
on the basis of such separate account.
(2) Special rules
For purposes of this subpart, in the case of a partnership to
which paragraph (1) applies -
(A) any partner's interest in the partnership shall not be
taken into account in determining whether such partner is a
related person with respect to any other partner, and
(B) the election under section 942(a)(3) shall be made
separately by each partner with respect to any transaction for
which the partnership maintains separate accounts for each
partner.
(g) Exclusion for patrons of agricultural and horticultural
cooperatives
Any amount described in paragraph (1) or (3) of section 1385(a) -
(1) which is received by a person from an organization to which
part I of subchapter T applies which is engaged in the marketing
of agricultural or horticultural products, and
(2) which is allocable to qualifying foreign trade income and
designated as such by the organization in a written notice mailed
to its patrons during the payment period described in section
1382(d),
shall be treated as qualifying foreign trade income of such person
for purposes of section 114. The taxable income of the organization
shall not be reduced under section 1382 by reason of any amount to
which the preceding sentence applies.
(h) Special rule for DISCs
Section 114 shall not apply to any taxpayer for any taxable year
if, at any time during the taxable year, the taxpayer is a member
of any controlled group of corporations (as defined in section
927(d)(4), as in effect before the date of the enactment of this
subsection) of which a DISC is a member.
-SOURCE-
(Added Pub. L. 106-519, Sec. 3(b), Nov. 15, 2000, 114 Stat. 2428;
amended Pub. L. 107-147, title IV, Sec. 417(14), Mar. 9, 2002, 116
Stat. 56.)
-REFTEXT-
REFERENCES IN TEXT
Section 3 of Public Law 96-72, referred to in subsec. (a)(3)(D),
is classified to section 2402 of Title 50, Appendix, War and
National Defense.
The date of the enactment of this subsection, referred to in
subsec. (h), is the date of enactment of Pub. L. 106-519, which was
approved Nov. 15, 2000.
-MISC1-
PRIOR PROVISIONS
A prior section 943, acts Aug. 16, 1954, ch. 736, 68A Stat. 294;
Oct. 4, 1976, Pub. L. 94-455, title X, Sec. 1053(b), 90 Stat. 1648,
set forth provisions relating to exclusion from gross income of
residents of Formosa or Hong Kong of amounts distributed as
dividends by China Trade Act corporations, prior to repeal by Pub.
L. 94-455, title X, Sec. 1053(c), (e), Oct. 4, 1976, 90 Stat. 1649,
effective with respect to taxable years beginning after Dec. 31,
1977.
AMENDMENTS
2002 - Subsec. (e)(4)(B). Pub. L. 107-147 aligned left margin of
concluding provisions with left margin of subpar. (A).
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 275, 864, 941 of this
title.
-End-
-CITE-
26 USC Subpart F - Controlled Foreign Corporations 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
SUBPART F - CONTROLLED FOREIGN CORPORATIONS
-MISC1-
Sec.
951. Amounts included in gross income of United States
shareholders.
952. Subpart F income defined.
953. Insurance income.
954. Foreign base company income.
955. Withdrawal of previously excluded subpart F income
from qualified investment.
956. Investment of earnings in United States property.
[956A. Repealed.]
957. Controlled foreign corporations; United States
persons.
958. Rules for determining stock ownership.
959. Exclusion from gross income of previously taxed
earnings and profits.
960. Special rules for foreign tax credit.
961. Adjustments to basis of stock in controlled foreign
corporations and of other property.
962. Election by individuals to be subject to tax at
corporate rates.
[963. Repealed.]
964. Miscellaneous provisions.
AMENDMENTS
1996 - Pub. L. 104-188, title I, Sec. 1501(c), Aug. 20, 1996, 110
Stat. 1826, which directed that the analysis for subpart F be
amended by striking item 956A, could not be executed, because item
956A "Earnings invested in excess passive assets" had been
editorially supplied.
1986 - Pub. L. 99-514, title XII, Sec. 1221(b)(3)(E), Oct. 22,
1986, 100 Stat. 2553, substituted "Insurance income" for "Income
from insurance of United States risks" in item 953.
1975 - Pub. L. 94-12, title VI, Sec. 602(a)(3)(A), (c)(7),
(d)(3)(B), Mar. 29, 1975, 89 Stat. 58, 60, 64, struck out existing
item 955 and replaced it with an identical item 955 and struck out
item 963 "Receipt of minimum distributions by domestic
corporations".
1962 - Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1006,
added heading of subpart F, and items 951-964.
-SECREF-
SUBPART REFERRED TO IN OTHER SECTIONS
This subpart is referred to in sections 848, 864, 898, 904, 951,
952, 954, 955, 970, 999, 1296, 1297, 1373, 6038, 6654, 6655 of this
title.
-End-
-CITE-
26 USC Sec. 951 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 951. Amounts included in gross income of United States
shareholders
-STATUTE-
(a) Amounts included
(1) In general
If a foreign corporation is a controlled foreign corporation
for an uninterrupted period of 30 days or more during any taxable
year, every person who is a United States shareholder (as defined
in subsection (b)) of such corporation and who owns (within the
meaning of section 958(a)) stock in such corporation on the last
day, in such year, on which such corporation is a controlled
foreign corporation shall include in his gross income, for his
taxable year in which or with which such taxable year of the
corporation ends -
(A) the sum of -
(i) his pro rata share (determined under paragraph (2)) of
the corporation's subpart F income for such year,
(ii) his pro rata share (determined under section 955(a)(3)
as in effect before the enactment of the Tax Reduction Act of
1975) of the corporation's previously excluded subpart F
income withdrawn from investment in less developed countries
for such year, and
(iii) his pro rata share (determined under section
955(a)(3)) of the corporation's previously excluded subpart F
income withdrawn from foreign base company shipping
operations for such year; and
(B) the amount determined under section 956 with respect to
such shareholder for such year (but only to the extent not
excluded from gross income under section 959(a)(2)).
(2) Pro rata share of subpart F income
The pro rata share referred to in paragraph (1)(A)(i) in the
case of any United States shareholder is the amount -
(A) which would have been distributed with respect to the
stock which such shareholder owns (within the meaning of
section 958(a)) in such corporation if on the last day, in its
taxable year, on which the corporation is a controlled foreign
corporation it had distributed pro rata to its shareholders an
amount (i) which bears the same ratio to its subpart F income
for the taxable year, as (ii) the part of such year during
which the corporation is a controlled foreign corporation bears
to the entire year, reduced by
(B) the amount of distributions received by any other person
during such year as a dividend with respect to such stock, but
only to the extent of the dividend which would have been
received if the distribution by the corporation had been the
amount (i) which bears the same ratio to the subpart F income
of such corporation for the taxable year, as (ii) the part of
such year during which such shareholder did not own (within the
meaning of section 958(a)) such stock bears to the entire year.
For purposes of subparagraph (B), any gain included in the gross
income of any person as a dividend under section 1248 shall be
treated as a distribution received by such person with respect to
the stock involved.
(3) Limitation on pro rata share of previously excluded subpart F
income withdrawn from investment
For purposes of paragraph (1)(A)(iii), the pro rata share of
any United States shareholder of the previously excluded subpart
F income of a controlled foreign corporation withdrawn from
investment in foreign base company shipping operations shall not
exceed an amount -
(A) which bears the same ratio to his pro rata share of such
income withdrawn (as determined under section 955(a)(3)) for
the taxable year, as
(B) the part of such year during which the corporation is a
controlled foreign corporation bears to the entire year.
(b) United States shareholder defined
For purposes of this subpart, the term "United States
shareholder" means, with respect to any foreign corporation, a
United States person (as defined in section 957(c)) who owns
(within the meaning of section 958(a)), or is considered as owning
by applying the rules of ownership of section 958(b), 10 percent or
more of the total combined voting power of all classes of stock
entitled to vote of such foreign corporation.
(c) Coordination with election of a foreign investment company to
distribute income
A United States shareholder who, for his taxable year, is a
qualified shareholder (within the meaning of section 1247(c)) of a
foreign investment company with respect to which an election under
section 1247 is in effect shall not be required to include in gross
income, for such taxable year, any amount under subsection (a) with
respect to such company.
(d) Coordination with foreign personal holding company provisions
If, but for this subsection, an amount would be included in the
gross income of a United States shareholder for any taxable year
both under subsection (a)(1)(A)(i) and under section 551(b)
(relating to foreign personal holding company income included in
gross income of United States shareholder), such amount shall be
included in the gross income of such shareholder only under
subsection (a)(1)(A).
(e) Foreign trade income not taken into account
(1) In general
The foreign trade income of a FSC and any deductions which are
apportioned or allocated to such income shall not be taken into
account under this subpart.
(2) Foreign trade income
For purposes of this subsection, the term "foreign trade
income" has the meaning given such term by section 923(b),(!1)
but does not include section 923(a)(2) (!1) non-exempt income
(within the meaning of section 927(d)(6)).(!1)
(f) Coordination with passive foreign investment company provisions
If, but for this subsection, an amount would be included in the
gross income of a United States shareholder for any taxable year
both under subsection (a)(1)(A)(i) and under section 1293 (relating
to current taxation of income from certain passive foreign
investment companies), such amount shall be included in the gross
income of such shareholder only under subsection (a)(1)(A).
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1006;
amended Pub. L. 94-12, title VI, Sec. 602(a)(3)(B), (c)(3), (4),
(d)(2), Mar. 29, 1975, 89 Stat. 58, 62; Pub. L. 94-455, title XIX,
Sec. 1901(a)(119), Oct. 4, 1976, 90 Stat. 1784; Pub. L. 98-369,
div. A, title I, Sec. 132(c)(1), title VIII, Sec. 801(d)(4), July
18, 1984, 98 Stat. 666, 996; Pub. L. 99-514, title XII, Sec.
1235(c), title XVIII, Sec. 1876(c)(2), Oct. 22, 1986, 100 Stat.
2574, 2898; Pub. L. 100-647, title I, Sec. 1012(i)(15), Nov. 10,
1988, 102 Stat. 3510; Pub. L. 103-66, title XIII, Secs. 13231(a),
13232(c), Aug. 10, 1993, 107 Stat. 495, 502; Pub. L. 104-188, title
I, Sec. 1501(a)(1), Aug. 20, 1996, 110 Stat. 1825; Pub. L. 105-34,
title XI, Sec. 1112(a)(1), Aug. 5, 1997, 111 Stat. 969.)
-REFTEXT-
REFERENCES IN TEXT
The Tax Reduction Act of 1975, referred to in subsec.
(a)(1)(A)(ii), is Pub. L. 94-12, Mar. 29, 1975, 89 Stat. 26, as
amended, which was enacted Mar. 29, 1975. For complete
classification of this Act to the Code, see Short Title of 1975
Amendment note set out under section 1 of this title and Tables.
Sections 923 and 927, referred to in subsec. (e)(2), were
repealed by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
-MISC1-
AMENDMENTS
1997 - Subsec. (a)(2). Pub. L. 105-34 inserted concluding
provisions "For purposes of subparagraph (B), any gain included in
the gross income of any person as a dividend under section 1248
shall be treated as a distribution received by such person with
respect to the stock involved."
1996 - Subsec. (a)(1)(A) to (C). Pub. L. 104-188 inserted "and"
at end of subpar. (A), substituted period for "; and" at end of
subpar. (B), and struck out subpar. (C) which read as follows: "the
amount determined under section 956A with respect to such
shareholder for such year (but only to the extent not excluded from
gross income under section 959(a)(3))."
1993 - Subsec. (a)(1)(B). Pub. L. 103-66, Sec. 13232(c)(1),
substituted "the amount determined under section 956 with respect
to such shareholder for such year (but only to the extent not
excluded from gross income under section 959(a)(2)); and" for "his
pro rata share (determined under section 956(a)(2)) of the
corporation's increase in earnings invested in United States
property for such year (but only to the extent not excluded from
gross income under section 959(a)(2)); and".
Subsec. (a)(1)(C). Pub. L. 103-66, Sec. 13231(a), added subpar.
(C).
Subsec. (a)(4). Pub. L. 103-66, Sec. 13232(c)(2), struck out
heading and text of par. (4). Text read as follows: "For purposes
of paragraph (1)(B), the pro rata share of any United States
shareholder in the increase of the earnings of a controlled foreign
corporation invested in United States property shall not exceed an
amount (A) which bears the same ratio to his pro rata share of such
increase (as determined under section 956(a)(2)) for the taxable
year, as (B) the part of such year during which the corporation is
a controlled foreign corporation bears to the entire year."
1988 - Subsec. (b). Pub. L. 100-647 substituted "section 957(c)"
for "section 957(d)".
1986 - Subsec. (e)(1). Pub. L. 99-514, Sec. 1876(c)(2), struck
out last sentence which read as follows: "For purposes of the
preceding sentence, income described in paragraph (2) or (3) of
section 921(d) shall be treated as derived from sources within the
United States."
Subsec. (f). Pub. L. 99-514, Sec. 1235(c), added subsec. (f).
1984 - Subsec. (d). Pub. L. 98-369, Sec. 132(c)(1), amended
subsec. (d) generally, substituting provision that, if a United
States shareholder is required to include in gross income an amount
under both subsec. (a)(1)(A)(ii) of this section and section 551(b)
of this title, such amount be included only under subsec.
(a)(1)(A)(ii) of this section for provision that, if a United
States shareholder is subject to tax under section 551(b) of this
title, such shareholder not be required to include as gross income
any amount under subsec. (a) of this section.
Subsec. (e). Pub. L. 98-369, Sec. 801(d)(4), added subsec. (e).
1976 - Subsec. (a)(1). Pub. L. 94-455 struck out "beginning after
December 31, 1962" after "during any taxable year".
1975 - Subsec. (a)(1)(A)(i). Pub. L. 94-12, Sec. 602(a)(3)(B),
struck out "except as provided in section 963," before "his pro
rata share".
Subsec. (a)(1)(A)(ii). Pub. L. 94-12, Sec. 602(c)(3), substituted
"(determined under section 955(a)(3) as in effect before the
enactment of the Tax Reduction Act of 1975)" for "(determined under
section 955(a)(3))".
Subsec. (a)(1)(A)(iii). Pub. L. 94-12, Sec. 602(d)(2)(A), added
cl. (iii).
Subsec. (a)(3). Pub. L. 94-12, Sec. 602(c)(4), (d)(2)(B),
substituted "paragraph (i)(A)(iii)" for "paragraph (1)(A)(ii)" and
"foreign base company shipping operations" for "less developed
countries".
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1112(a)(2) of Pub. L. 105-34 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to dispositions after the date of the enactment of this Act [Aug.
5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1996, and to taxable
years of United States shareholders within which or with which such
taxable years of foreign corporations end, see section 1501(d) of
Pub. L. 104-188, set out as a note under section 904 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13231(e) of Pub. L. 103-66 provided that: "The amendments
made by this section [enacting section 956A of this title and
amending this section and sections 959, 989, 1293, 1296, and 1297
of this title] shall apply to taxable years of foreign corporations
beginning after September 30, 1993, and to taxable years of United
States shareholders in which or with which such taxable years of
foreign corporations end."
Section 13232(d) of Pub. L. 103-66 provided that: "The amendments
made by this section [amending this section and section 956 of this
title] shall apply to taxable years of controlled foreign
corporations beginning after September 30, 1993, and to taxable
years of United States shareholders in which or with which such
taxable years of controlled foreign corporations end."
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 1235(c) of Pub. L. 99-514 applicable to
taxable years of foreign corporations beginning after Dec. 31,
1986, see section 1235(h) of Pub. L. 99-514, set out as an
Effective Date note under section 1291 of this title.
Amendment by section 1876(c)(2) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 132(d)(2)(A) of Pub. L. 98-369 provided that: "The
amendment made by paragraph (1) of subsection (c) [amending this
section] shall apply to taxable years of United States shareholders
beginning after the date of the enactment of this Act [July 18,
1984]."
Amendment by section 801(d)(4) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 applicable to taxable years of foreign
corporations beginning after Dec. 31, 1975, and to taxable years of
United States shareholders (within the meaning of 951(b) of this
title) within which or with which such taxable years of such
foreign corporations end, see section 602(f) of Pub. L. 94-12, set
out as an Effective Date note under section 955 of this title.
EFFECTIVE DATE
Section 12(c) of Pub. L. 87-834 provided that: "The amendments
made by this section [enacting this section and sections 952 to 964
and 970 to 972 of this title and amending sections 901, 904, and
1016 of this title] shall apply with respect to taxable years of
foreign corporations beginning after December 31, 1962, and to
taxable year of United States shareholders within which or with
which such taxable years of such foreign corporations end."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 168, 304, 512, 851, 864,
865, 877, 898, 902, 904, 952, 953, 955, 956, 958, 959, 960, 961,
962, 970, 989, 993, 999, 1246, 1248, 1293, 1294, 1297, 1298, 6654,
6655 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 952 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 952. Subpart F income defined
-STATUTE-
(a) In general
For purposes of this subpart, the term "subpart F income" means,
in the case of any controlled foreign corporation, the sum of -
(1) insurance income (as defined under section 953),
(2) the foreign base company income (as determined under
section 954),
(3) an amount equal to the product of -
(A) the income of such corporation other than income which -
(i) is attributable to earnings and profits of the foreign
corporation included in the gross income of a United States
person under section 951 (other than by reason of this
paragraph), or
(ii) is described in subsection (b),
multiplied by
(B) the international boycott factor (as determined under
section 999),
(4) the sum of the amounts of any illegal bribes, kickbacks, or
other payments (within the meaning of section 162(c)) paid by or
on behalf of the corporation during the taxable year of the
corporation directly or indirectly to an official, employee, or
agent in fact of a government, and
(5) the income of such corporation derived from any foreign
country during any period during which section 901(j) applies to
such foreign country.
The payments referred to in paragraph (4) are payments which would
be unlawful under the Foreign Corrupt Practices Act of 1977 if the
payor were a United States person. For purposes of paragraph (5),
the income described therein shall be reduced, under regulations
prescribed by the Secretary, so as to take into account deductions
(including taxes) properly allocable to such income.
(b) Exclusion of United States income
In the case of a controlled foreign corporation, subpart F income
does not include any item of income from sources within the United
States which is effectively connected with the conduct by such
corporation of a trade or business within the United States unless
such item is exempt from taxation (or is subject to a reduced rate
of tax) pursuant to a treaty obligation of the United States. For
purposes of the preceding sentence, income described in paragraph
(2) or (3) of section 921(d) (!1) shall be treated as derived from
sources within the United States. For purposes of this subsection,
any exemption (or reduction) with respect to the tax imposed by
section 884 shall not be taken into account.
(c) Limitation
(1) In general
(A) Subpart F income limited to current earnings and profits
For purposes of subsection (a), the subpart F income of any
controlled foreign corporation for any taxable year shall not
exceed the earnings and profits of such corporation for such
taxable year.
(B) Certain prior year deficits may be taken into account
(i) In general
The amount included in the gross income of any United
States shareholder under section 951(a)(1)(A)(i) for any
taxable year and attributable to a qualified activity shall
be reduced by the amount of such shareholder's pro rata share
of any qualified deficit.
(ii) Qualified deficit
The term "qualified deficit" means any deficit in earnings
and profits of the controlled foreign corporation for any
prior taxable year which began after December 31, 1986, and
for which the controlled foreign corporation was a controlled
foreign corporation; but only to the extent such deficit -
(I) is attributable to the same qualified activity as the
activity giving rise to the income being offset, and
(II) has not previously been taken into account under
this subparagraph.
In determining the deficit attributable to qualified
activities described in clause (iii)(III) or (IV), deficits
in earnings and profits (to the extent not previously taken
into account under this section) for taxable years beginning
after 1962 and before 1987 also shall be taken into account.
In the case of the qualified activity described in clause
(iii)(II), the rule of the preceding sentence shall apply,
except that "1982" shall be substituted for "1962".
(iii) Qualified activity
For purposes of this paragraph, the term "qualified
activity" means any activity giving rise to -
(I) foreign base company shipping income,
(II) foreign base company oil related income,
(III) foreign base company sales income,
(IV) foreign base company services income,
(V) in the case of a qualified insurance company,
insurance income or foreign personal holding company
income, or
(VI) in the case of a qualified financial institution,
foreign personal holding company income.
(iv) Pro rata share
For purposes of this paragraph, the shareholder's pro rata
share of any deficit for any prior taxable year shall be
determined under rules similar to rules under section
951(a)(2) for whichever of the following yields the smaller
share:
(I) the close of the taxable year, or
(II) the close of the taxable year in which the deficit
arose.
(v) Qualified insurance company
For purposes of this subparagraph, the term "qualified
insurance company" means any controlled foreign corporation
predominantly engaged in the active conduct of an insurance
business in the taxable year and in the prior taxable years
in which the deficit arose.
(vi) Qualified financial institution
For purposes of this paragraph, the term "qualified
financial institution" means any controlled foreign
corporation predominantly engaged in the active conduct of a
banking, financing, or similar business in the taxable year
and in the prior taxable year in which the deficit arose.
(vii) Special rules for insurance income
(I) In general
An election may be made under this clause to have section
953(a) applied for purposes of this title without regard to
the same country exception under paragraph (1)(A) thereof.
Such election, once made, may be revoked only with the
consent of the Secretary.
(II) Special rules for affiliated groups
In the case of an affiliated group of corporations
(within the meaning of section 1504 but without regard to
section 1504(b)(3) and by substituting "more than 50
percent" for "at least 80 percent" each place it appears),
no election may be made under subclause (I) for any
controlled foreign corporation unless such election is made
for all other controlled foreign corporations who are
members of such group and who were created or organized
under the laws of the same country as such controlled
foreign corporation. For purposes of clause (v), in
determining whether any controlled corporation described in
the preceding sentence is a qualified insurance company,
all such corporations shall be treated as 1 corporation.
(C) Certain deficits of member of the same chain of
corporations may be taken into account
(i) In general
A controlled foreign corporation may elect to reduce the
amount of its subpart F income for any taxable year which is
attributable to any qualified activity by the amount of any
deficit in earnings and profits of a qualified chain member
for a taxable year ending with (or within) the taxable year
of such controlled foreign corporation to the extent such
deficit is attributable to such activity. To the extent any
deficit reduces subpart F income under the preceding
sentence, such deficit shall not be taken into account under
subparagraph (B).
(ii) Qualified chain member
For purposes of this subparagraph, the term "qualified
chain member" means, with respect to any controlled foreign
corporation, any other corporation which is created or
organized under the laws of the same foreign country as the
controlled foreign corporation but only if -
(I) all the stock of such other corporation (other than
directors' qualifying shares) is owned at all times during
the taxable year in which the deficit arose (directly or
through 1 or more corporations other than the common
parent) by such controlled foreign corporation, or
(II) all the stock of such controlled foreign corporation
(other than directors' qualifying shares) is owned at all
times during the taxable year in which the deficit arose
(directly or through 1 or more corporations other than the
common parent) by such other corporation.
(iii) Coordination
This subparagraph shall be applied after subparagraphs (A)
and (B).
(2) Recharacterization in subsequent taxable years
If the subpart F income of any controlled foreign corporation
for any taxable year was reduced by reason of paragraph (1)(A),
any excess of the earnings and profits of such corporation for
any subsequent taxable year over the subpart F income of such
foreign corporation for such taxable year shall be
recharacterized as subpart F income under rules similar to the
rules applicable under section 904(f)(5).
(3) Special rule for determining earnings and profits
For purposes of this subsection, earnings and profits of any
controlled foreign corporation shall be determined without regard
to paragraphs (4), (5), and (6) of section 312(n). Under
regulations, the preceding sentence shall not apply to the extent
it would increase earnings and profits by an amount which was
previously distributed by the controlled foreign corporation.
(d) Income derived from foreign country
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of subsection
(a)(5), including regulations which treat income paid through 1 or
more entities as derived from a foreign country to which section
901(j) applies if such income was, without regard to such entities,
derived from such country.
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1008;
amended Pub. L. 89-809, title I, Sec. 104(j), Nov. 13, 1966, 80
Stat. 1562; Pub. L. 94-455, title X, Secs. 1062, 1065(a)(1), title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1650, 1653, 1834;
Pub. L. 97-248, title II, Sec. 288(b)(1), Sept. 3, 1982, 96 Stat.
571; Pub. L. 99-509, title VIII, Sec. 8041(b), Oct. 21, 1986, 100
Stat. 1963; Pub. L. 99-514, title XII, Sec. 1221(b)(3)(A), (f),
title XVIII, Sec. 1876(c)(1), Oct. 22, 1986, 100 Stat. 2552, 2554,
2898; Pub. L. 100-647, title I, Sec. 1012(i)(16), (22)-(25)(A),
title VI, Sec. 6131(a), Nov. 10, 1988, 102 Stat. 3510-3512, 3720;
Pub. L. 105-34, title XI, Sec. 1112(c)(1), Aug. 5, 1997, 111 Stat.
969.)
-REFTEXT-
REFERENCES IN TEXT
The Foreign Corrupt Practices Act of 1977, referred to in subsec.
(a), is title I of Pub. L. 95-213, Dec. 19, 1977, 91 Stat. 1494, as
amended, which enacted sections 78dd-1 to 78dd-3 of Title 15,
Commerce and Trade, and amended sections 78m and 78ff of Title 15.
For complete classification of this Act to the Code, see Short
Title of 1977 Amendment note set out under section 78a of Title 15
and Tables.
Section 921, referred to in subsec. (b), was repealed by Pub. L.
106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
-MISC1-
AMENDMENTS
1997 - Subsec. (b). Pub. L. 105-34 inserted at end "For purposes
of this subsection, any exemption (or reduction) with respect to
the tax imposed by section 884 shall not be taken into account."
1988 - Subsec. (c)(1)(B)(ii). Pub. L. 100-647, Sec. 1012(i)(24),
inserted at end "In determining the deficit attributable to
qualified activities described in clause (iii)(III) or (IV),
deficits in earnings and profits (to the extent not previously
taken into account under this section) for taxable years beginning
after 1962 and before 1987 also shall be taken into account. In the
case of the qualified activity described in clause (iii)(II), the
rule of the preceding sentence shall apply, except that '1982'
shall be substituted for '1962'."
Subsec. (c)(1)(B)(iii)(III) to (VI). Pub. L. 100-647, Sec.
1012(i)(22), (23), added subcls. (III) and (IV), redesignated
former subcl. (III) as (V) and substituted "insurance income or
foreign personal holding company income," for "insurance income",
and redesignated former subcl. (IV) as (VI).
Subsec. (c)(1)(B)(vii). Pub. L. 100-647, Sec. 6131(a), added cl.
(vii).
Subsec. (c)(1)(C). Pub. L. 100-647, Sec. 1012(i)(25)(A), added
subpar. (C).
Subsec. (c)(3). Pub. L. 100-647, Sec. 1012(i)(16), added par.
(3).
1986 - Subsec. (a). Pub. L. 99-509, Sec. 8041(b)(1), added par.
(5) and last sentence.
Subsec. (a)(1). Pub. L. 99-514, Sec. 1221(b)(3)(A), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: "the
income derived from the insurance of United States risks (as
determined under section 953), and".
Subsec. (b). Pub. L. 99-514, Sec. 1876(c)(1), inserted last
sentence.
Subsec. (c). Pub. L. 99-514, Sec. 1221(f), added subsec. (c) and
struck out former subsec. (c) which read as follows: "For purposes
of subsection (a), the subpart F income of any controlled foreign
corporation for any taxable year shall not exceed the earnings and
profits of such corporation for such year reduced by the amount (if
any) by which -
"(1) an amount equal to -
"(A) the sum of the deficits in earnings and profits for
prior taxable years beginning after December 31, 1962, plus
"(B) the sum of the deficits in earnings and profits for
taxable years beginning after December 31, 1959, and before
January 1, 1963 (reduced by the sum of the earnings and profits
for such taxable years); exceeds
"(2) an amount equal to the sum of the earnings and profits for
prior taxable years beginning after December 31, 1962, allocated
to other earnings and profits under section 959(c)(3).
For purposes of the preceding sentence, any deficit in earnings and
profits for any prior taxable year shall be taken into account
under paragraph (1) for any taxable year only to the extent it has
not been taken into account under such paragraph for any preceding
taxable year to reduce earnings and profits of such preceding
year."
Subsec. (d). Pub. L. 99-509, Sec. 8041(b)(2), added subsec. (d).
Pub. L. 99-514, Sec. 1221(f), struck out subsec. (d), special
rule in case of indirect ownership, which read as follows: "For
purposes of subsection (c), if -
"(1) a United States shareholder owns (within the meaning of
section 958(a)) stock of a foreign corporation, and by reason of
such ownership owns (within the meaning of such section) stock of
any other foreign corporation, and
"(2) any of such foreign corporations has a deficit in earnings
and profits for the taxable year,
then the earnings and profits for the taxable year of each such
foreign corporation which is a controlled foreign corporation
shall, with respect to such United States shareholder, be properly
reduced to take into account any deficit described in paragraph (2)
in such manner as the Secretary shall prescribe by regulations."
1982 - Subsec. (a). Pub. L. 97-248 inserted provision that the
payments referred to in par. (4) are payments which would be
unlawful under the Foreign Corrupt Practices Act of 1977 if the
payor were a United States person.
1976 - Subsec. (a)(3). Pub. L. 94-455, Sec. 1062(a), added par.
(3).
Subsec. (a)(4). Pub. L. 94-455, Sec. 1065(a)(1), added par. (4).
Subsec. (d). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
1966 - Subsec. (b). Pub. L. 89-809 substituted "In the case of a
controlled foreign corporation, subpart F income does not include
any item of income from sources within the United States which is
effectively connected with the conduct by such corporation of a
trade or business within the United States unless such item is
exempt from taxation (or is subject to a reduced rate of tax)
pursuant to a treaty obligation of the United States" for "Subpart
F income does not include any item includible in gross income under
this chapter (other than this subpart) as income derived from
sources within the United States of a foreign corporation engaged
in trade or business in the United States".
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1112(c)(2) of Pub. L. 105-34 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after December 31, 1986."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1012(i)(16), (22)-(25)(A) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6131(b) of Pub. L. 100-647 provided that: "The amendment
made by this section [amending this section] shall take effect as
if included in the amendments made by section 1221(f) of the Reform
Act [Pub. L. 99-514]."
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 1221(b)(3)(A), (f) of Pub. L. 99-514
applicable to taxable years of foreign corporations beginning after
Dec. 31, 1986, except as otherwise provided, see section 1221(g) of
Pub. L. 99-514, set out as a note under section 954 of this title.
Amendment by section 1876(c)(1) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
Amendment by Pub. L. 99-509 effective Jan. 1, 1987, see section
8041(c) of Pub. L. 99-509, set out as a note under section 901 of
this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to payments made after
Sept. 3, 1982, see section 288(c) of Pub. L. 97-248, set out as a
note under section 162 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1062 of Pub. L. 94-455 applicable to
participation in or cooperation with an international boycott more
than 30 days after Oct. 4, 1976, see section 1066(a) of Pub. L.
94-455, set out as a note under section 908 of this title.
Section 1066(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by section 1065 [amending this section and sections
995 and 964 of this title] apply to payments described in section
162(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
made more than 30 days after the date of enactment of this Act
[Oct. 4, 1976]."
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
DETERMINATION OF CORPORATE EARNINGS AND PROFITS FOR PURPOSES OF
APPLYING SUBSECTION (C)(1)(A)
Section 1012(i)(6) of Pub. L. 100-647 provided that: "For
purposes of applying section 952(c)(1)(A) of the 1986 Code, the
earnings and profits of any corporation shall be determined without
regard to any increase in earnings and profits under section
1023(e)(3)(C) of the Reform Act [Pub. L. 99-514, set out as an
Effective Date note under section 846 of this title]."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 864, 953, 954, 956, 964,
999 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 953 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 953. Insurance income
-STATUTE-
(a) Insurance income
(1) In general
For purposes of section 952(a)(1), the term "insurance income"
means any income which -
(A) is attributable to the issuing (or reinsuring) of an
insurance or annuity contract, and
(B) would (subject to the modifications provided by
subsection (b)) be taxed under subchapter L of this chapter if
such income were the income of a domestic insurance company.
(2) Exception
Such term shall not include any exempt insurance income (as
defined in subsection (e)).
(b) Special rules
For purposes of subsection (a) -
(1) The following provisions of subchapter L shall not apply:
(A) The small life insurance company deduction.
(B) Section 805(a)(5) (relating to operations loss
deduction).
(C) Section 832(c)(5) (relating to certain capital losses).
(2) The items referred to in -
(A) section 803(a)(1) (relating to gross amount of premiums
and other considerations),
(B) section 803(a)(2) (relating to net decrease in reserves),
(C) section 805(a)(2) (relating to net increase in reserves),
and
(D) section 832(b)(4) (relating to premiums earned on
insurance contracts),
shall be taken into account only to the extent they are in
respect of any reinsurance or the issuing of any insurance or
annuity contract described in subsection (a)(1).
(3) Reserves for any insurance or annuity contract shall be
determined in the same manner as under section 954(i).
(4) All items of income, expenses, losses, and deductions shall
be properly allocated or apportioned under regulations prescribed
by the Secretary.
(c) Special rule for certain captive insurance companies
(1) In general
For purposes only of taking into account related person
insurance income -
(A) the term "United States shareholder" means, with respect
to any foreign corporation, a United States person (as defined
in section 957(c)) who owns (within the meaning of section
958(a)) any stock of the foreign corporation,
(B) the term "controlled foreign corporation" has the meaning
given to such term by section 957(a) determined by substituting
"25 percent or more" for "more than 50 percent", and
(C) the pro rata share referred to in section 951(a)(1)(A)(i)
shall be determined under paragraph (5) of this subsection.
(2) Related person insurance income
For purposes of this subsection, the term "related person
insurance income" means any insurance income (within the meaning
of subsection (a)) attributable to a policy of insurance or
reinsurance with respect to which the person (directly or
indirectly) insured is a United States shareholder in the foreign
corporation or a related person to such a shareholder.
(3) Exceptions
(A) Corporations not held by insureds
Paragraph (1) shall not apply to any foreign corporation if
at all times during the taxable year of such foreign
corporation -
(i) less than 20 percent of the total combined voting power
of all classes of stock of such corporation entitled to vote,
and
(ii) less than 20 percent of the total value of such
corporation,
is owned (directly or indirectly under the principles of
section 883(c)(4)) by persons who are (directly or indirectly)
insured under any policy of insurance or reinsurance issued by
such corporation or who are related persons to any such person.
(B) De minimis exception
Paragraph (1) shall not apply to any foreign corporation for
a taxable year of such corporation if the related person
insurance income (determined on a gross basis) of such
corporation for such taxable year is less than 20 percent of
its insurance income (as so determined) for such taxable year
determined without regard to those provisions of subsection
(a)(1) which limit insurance income to income from countries
other than the country in which the corporation was created or
organized.
(C) Election to treat income as effectively connected
Paragraph (1) shall not apply to any foreign corporation for
any taxable year if -
(i) such corporation elects (at such time and in such
manner as the Secretary may prescribe) -
(I) to treat its related person insurance income for such
taxable year as income effectively connected with the
conduct of a trade or business in the United States, and
(II) to waive all benefits (other than with respect to
section 884) with respect to related person insurance
income granted by the United States under any treaty
between the United States and any foreign country, and
(ii) such corporation meets such requirements as the
Secretary shall prescribe to ensure that the tax imposed by
this chapter on such income is paid.
An election under this subparagraph made for any taxable year
shall not be effective if the corporation (or any predecessor
thereof) was a disqualified corporation for the taxable year
for which the election was made or for any prior taxable year
beginning after 1986.
(D) Special rules for subparagraph (C)
(i) Period during which election in effect
(I) In general
Except as provided in subclause (II), any election under
subparagraph (C) shall apply to the taxable year for which
made and all subsequent taxable years unless revoked with
the consent of the Secretary.
(II) Termination
If a foreign corporation which made an election under
subparagraph (C) for any taxable year is a disqualified
corporation for any subsequent taxable year, such election
shall not apply to any taxable year beginning after such
subsequent taxable year.
(ii) Exemption from tax imposed by section 4371
The tax imposed by section 4371 shall not apply with
respect to any related person insurance income treated as
effectively connected with the conduct of a trade or business
within the United States under subparagraph (C).
(E) Disqualified corporation
For purposes of this paragraph the term "disqualified
corporation" means, with respect to any taxable year, any
foreign corporation which is a controlled foreign corporation
for an uninterrupted period of 30 days or more during such
taxable year (determined without regard to this subsection) but
only if a United States shareholder (determined without regard
to this subsection) owns (within the meaning of section 958(a))
stock in such corporation at some time during such taxable
year.
(4) Treatment of mutual insurance companies
In the case of a mutual insurance company -
(A) this subsection shall apply,
(B) policyholders of such company shall be treated as
shareholders, and
(C) appropriate adjustments in the application of this
subpart shall be made under regulations prescribed by the
Secretary.
(5) Determination of pro rata share
(A) In general
The pro rata share determined under this paragraph for any
United States shareholder is the lesser of -
(i) the amount which would be determined under paragraph
(2) of section 951(a) if -
(I) only related person insurance income were taken into
account,
(II) stock owned (within the meaning of section 958(a))
by United States shareholders on the last day of the
taxable year were the only stock in the foreign
corporation, and
(III) only distributions received by United States
shareholders were taken into account under subparagraph (B)
of such paragraph (2), or
(ii) the amount which would be determined under paragraph
(2) of section 951(a) if the entire earnings and profits of
the foreign corporation for the taxable year were subpart F
income.
(B) Coordination with other provisions
The Secretary shall prescribe regulations providing for such
modifications to the provisions of this subpart as may be
necessary or appropriate by reason of subparagraph (A).
(6) Related person
For purposes of this subsection -
(A) In general
Except as provided in subparagraph (B), the term "related
person" has the meaning given such term by section 954(d)(3).
(B) Treatment of certain liability insurance policies
In the case of any policy of insurance covering liability
arising from services performed as a director, officer, or
employee of a corporation or as a partner or employee of a
partnership, the person performing such services and the entity
for which such services are performed shall be treated as
related persons.
(7) Coordination with section 1248
For purposes of section 1248, if any person is (or would be but
for paragraph (3)) treated under paragraph (1) as a United States
shareholder with respect to any foreign corporation which would
be taxed under subchapter L if it were a domestic corporation and
which is (or would be but for paragraph (3)) treated under
paragraph (1) as a controlled foreign corporation -
(A) such person shall be treated as meeting the stock
ownership requirements of section 1248(a)(2) with respect to
such foreign corporation, and
(B) such foreign corporation shall be treated as a controlled
foreign corporation.
(8) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including
-
(A) regulations preventing the avoidance of this subsection
through cross insurance arrangements or otherwise, and
(B) regulations which may provide that a person will not be
treated as a United States shareholder under paragraph (1) with
respect to any foreign corporation if neither such person (nor
any related person to such person) is (directly or indirectly)
insured under any policy of insurance or reinsurance issued by
such foreign corporation.
(d) Election by foreign insurance company to be treated as domestic
corporation
(1) In general
If -
(A) a foreign corporation is a controlled foreign corporation
(as defined in section 957(a) by substituting "25 percent or
more" for "more than 50 percent" and by using the definition of
United States shareholder under 953(c)(1)(A)),
(B) such foreign corporation would qualify under part I or II
of subchapter L for the taxable year if it were a domestic
corporation,
(C) such foreign corporation meets such requirements as the
Secretary shall prescribe to ensure that the taxes imposed by
this chapter on such foreign corporation are paid, and
(D) such foreign corporation makes an election to have this
paragraph apply and waives all benefits to such corporation
granted by the United States under any treaty,
for purposes of this title, such corporation shall be treated as
a domestic corporation.
(2) Period during which election is in effect
(A) In general
Except as provided in subparagraph (B), an election under
paragraph (1) shall apply to the taxable year for which made
and all subsequent taxable years unless revoked with the
consent of the Secretary.
(B) Termination
If a corporation which made an election under paragraph (1)
for any taxable year fails to meet the requirements of
subparagraphs (A), (B), and (C), of paragraph (1) for any
subsequent taxable year, such election shall not apply to any
taxable year beginning after such subsequent taxable year.
(3) Treatment of losses
If any corporation treated as a domestic corporation under this
subsection is treated as a member of an affiliated group for
purposes of chapter 6 (relating to consolidated returns), any
loss of such corporation shall be treated as a dual consolidated
loss for purposes of section 1503(d) without regard to paragraph
(2)(B) thereof.
(4) Effect of election
(A) In general
For purposes of section 367, any foreign corporation making
an election under paragraph (1) shall be treated as
transferring (as of the 1st day of the 1st taxable year to
which such election applies) all of its assets to a domestic
corporation in connection with an exchange to which section 354
applies.
(B) Exception for pre-1988 earnings and profit
(i) In general
Earnings and profits of the foreign corporation accumulated
in taxable years beginning before January 1, 1988, shall not
be included in the gross income of the persons holding stock
in such corporation by reason of subparagraph (A).
(ii) Treatment of distributions
For purposes of this title, any distribution made by a
corporation to which an election under paragraph (1) applies
out of earnings and profits accumulated in taxable years
beginning before January 1, 1988, shall be treated as a
distribution made by a foreign corporation.
(iii) Certain rules to continue to apply to pre-1988 earnings
The provisions specified in clause (iv) shall be applied
without regard to paragraph (1), except that, in the case of
a corporation to which an election under paragraph (1)
applies, only earnings and profits accumulated in taxable
years beginning before January 1, 1988, shall be taken into
account.
(iv) Specified provisions
The provisions specified in this clause are:
(I) Section 1248 (relating to gain from certain sales or
exchanges of stock in certain foreign corporations).
(II) Subpart F of part III of subchapter N to the extent
such subpart relates to earnings invested in United States
property or amounts referred to in clause (ii) or (iii) of
section 951(a)(1)(A).
(III) Section 884 to the extent the foreign corporation
reinvested 1987 earnings and profits in United States
assets.
(5) Effect of termination
For purposes of section 367, if -
(A) an election is made by a corporation under paragraph (1)
for any taxable year, and
(B) such election ceases to apply for any subsequent taxable
year,
such corporation shall be treated as a domestic corporation
transferring (as of the 1st day of such subsequent taxable year)
all of its property to a foreign corporation in connection with
an exchange to which section 354 applies.
(6) Additional tax on corporation making election
(A) In general
If a corporation makes an election under paragraph (1), the
amount of tax imposed by this chapter for the 1st taxable year
to which such election applies shall be increased by the amount
determined under subparagraph (B).
(B) Amount of tax
The amount of tax determined under this paragraph shall be
equal to the lesser of -
(i) 3/4 of 1 percent of the aggregate amount of capital
and accumulated surplus of the corporation as of December 31,
1987, or
(ii) $1,500,000.
(e) Exempt insurance income
For purposes of this section -
(1) Exempt insurance income defined
(A) In general
The term "exempt insurance income" means income derived by a
qualifying insurance company which -
(i) is attributable to the issuing (or reinsuring) of an
exempt contract by such company or a qualifying insurance
company branch of such company, and
(ii) is treated as earned by such company or branch in its
home country for purposes of such country's tax laws.
(B) Exception for certain arrangements
Such term shall not include income attributable to the
issuing (or reinsuring) of an exempt contract as the result of
any arrangement whereby another corporation receives a
substantially equal amount of premiums or other consideration
in respect of issuing (or reinsuring) a contract which is not
an exempt contract.
(C) Determinations made separately
For purposes of this subsection and section 954(i), the
exempt insurance income and exempt contracts of a qualifying
insurance company or any qualifying insurance company branch of
such company shall be determined separately for such company
and each such branch by taking into account -
(i) in the case of the qualifying insurance company, only
items of income, deduction, gain, or loss, and activities of
such company not properly allocable or attributable to any
qualifying insurance company branch of such company, and
(ii) in the case of a qualifying insurance company branch,
only items of income, deduction, gain, or loss and activities
properly allocable or attributable to such branch.
(2) Exempt contract
(A) In general
The term "exempt contract" means an insurance or annuity
contract issued or reinsured by a qualifying insurance company
or qualifying insurance company branch in connection with
property in, liability arising out of activity in, or the lives
or health of residents of, a country other than the United
States.
(B) Minimum home country income required
(i) In general
No contract of a qualifying insurance company or of a
qualifying insurance company branch shall be treated as an
exempt contract unless such company or branch derives more
than 30 percent of its net written premiums from exempt
contracts (determined without regard to this subparagraph) -
(I) which cover applicable home country risks, and
(II) with respect to which no policyholder, insured,
annuitant, or beneficiary is a related person (as defined
in section 954(d)(3)).
(ii) Applicable home country risks
The term "applicable home country risks" means risks in
connection with property in, liability arising out of
activity in, or the lives or health of residents of, the home
country of the qualifying insurance company or qualifying
insurance company branch, as the case may be, issuing or
reinsuring the contract covering the risks.
(C) Substantial activity requirements for cross border risks
A contract issued by a qualifying insurance company or
qualifying insurance company branch which covers risks other
than applicable home country risks (as defined in subparagraph
(B)(ii)) shall not be treated as an exempt contract unless such
company or branch, as the case may be -
(i) conducts substantial activity with respect to an
insurance business in its home country, and
(ii) performs in its home country substantially all of the
activities necessary to give rise to the income generated by
such contract.
(3) Qualifying insurance company
The term "qualifying insurance company" means any controlled
foreign corporation which -
(A) is subject to regulation as an insurance (or reinsurance)
company by its home country, and is licensed, authorized, or
regulated by the applicable insurance regulatory body for its
home country to sell insurance, reinsurance, or annuity
contracts to persons other than related persons (within the
meaning of section 954(d)(3)) in such home country,
(B) derives more than 50 percent of its aggregate net written
premiums from the issuance or reinsurance by such controlled
foreign corporation and each of its qualifying insurance
company branches of contracts -
(i) covering applicable home country risks (as defined in
paragraph (2)) of such corporation or branch, as the case may
be, and
(ii) with respect to which no policyholder, insured,
annuitant, or beneficiary is a related person (as defined in
section 954(d)(3)),
except that in the case of a branch, such premiums shall only
be taken into account to the extent such premiums are treated
as earned by such branch in its home country for purposes of
such country's tax laws, and
(C) is engaged in the insurance business and would be subject
to tax under subchapter L if it were a domestic corporation.
(4) Qualifying insurance company branch
The term "qualifying insurance company branch" means a
qualified business unit (within the meaning of section 989(a)) of
a controlled foreign corporation if -
(A) such unit is licensed, authorized, or regulated by the
applicable insurance regulatory body for its home country to
sell insurance, reinsurance, or annuity contracts to persons
other than related persons (within the meaning of section
954(d)(3)) in such home country, and
(B) such controlled foreign corporation is a qualifying
insurance company, determined under paragraph (3) as if such
unit were a qualifying insurance company branch.
(5) Life insurance or annuity contract
For purposes of this section and section 954, the determination
of whether a contract issued by a controlled foreign corporation
or a qualified business unit (within the meaning of section
989(a)) is a life insurance contract or an annuity contract shall
be made without regard to sections 72(s), 101(f), 817(h), and
7702 if -
(A) such contract is regulated as a life insurance or annuity
contract by the corporation's or unit's home country, and
(B) no policyholder, insured, annuitant, or beneficiary with
respect to the contract is a United States person.
(6) Home country
For purposes of this subsection, except as provided in
regulations -
(A) Controlled foreign corporation
The term "home country" means, with respect to a controlled
foreign corporation, the country in which such corporation is
created or organized.
(B) Qualified business unit
The term "home country" means, with respect to a qualified
business unit (as defined in section 989(a)), the country in
which the principal office of such unit is located and in which
such unit is licensed, authorized, or regulated by the
applicable insurance regulatory body to sell insurance,
reinsurance, or annuity contracts to persons other than related
persons (as defined in section 954(d)(3)) in such country.
(7) Anti-abuse rules
For purposes of applying this subsection and section 954(i) -
(A) the rules of section 954(h)(7) (other than subparagraph
(B) thereof) shall apply,
(B) there shall be disregarded any item of income, gain,
loss, or deduction of, or derived from, an entity which is not
engaged in regular and continuous transactions with persons
which are not related persons,
(C) there shall be disregarded any change in the method of
computing reserves a principal purpose of which is the
acceleration or deferral of any item in order to claim the
benefits of this subsection or section 954(i),
(D) a contract of insurance or reinsurance shall not be
treated as an exempt contract (and premiums from such contract
shall not be taken into account for purposes of paragraph
(2)(B) or (3)) if -
(i) any policyholder, insured, annuitant, or beneficiary is
a resident of the United States and such contract was
marketed to such resident and was written to cover a risk
outside the United States, or
(ii) the contract covers risks located within and without
the United States and the qualifying insurance company or
qualifying insurance company branch does not maintain such
contemporaneous records, and file such reports, with respect
to such contract as the Secretary may require,
(E) the Secretary may prescribe rules for the allocation of
contracts (and income from contracts) among 2 or more
qualifying insurance company branches of a qualifying insurance
company in order to clearly reflect the income of such
branches, and
(F) premiums from a contract shall not be taken into account
for purposes of paragraph (2)(B) or (3) if such contract
reinsures a contract issued or reinsured by a related person
(as defined in section 954(d)(3)).
For purposes of subparagraph (D), the determination of where
risks are located shall be made under the principles of section
953.
(8) Coordination with subsection (c)
In determining insurance income for purposes of subsection (c),
exempt insurance income shall not include income derived from
exempt contracts which cover risks other than applicable home
country risks.
(9) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection and section 954(i).
(10) Application
This subsection and section 954(i) shall apply only to taxable
years of a foreign corporation beginning after December 31, 1998,
and before January 1, 2007, and to taxable years of United States
shareholders with or within which any such taxable year of such
foreign corporation ends. If this subsection does not apply to a
taxable year of a foreign corporation beginning after December
31, 2006 (and taxable years of United States shareholders ending
with or within such taxable year), then, notwithstanding the
preceding sentence, subsection (a) shall be applied to such
taxable years in the same manner as it would if the taxable year
of the foreign corporation began in 1998.
(11) Cross reference
For income exempt from foreign personal holding company
income, see section 954(i).
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1008;
amended Pub. L. 89-809, title I, Sec. 104(m)(2), Nov. 13, 1966, 80
Stat. 1563; Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1834; Pub. L. 98-369, div. A, title II, Sec.
211(b)(13), July 18, 1984, 98 Stat. 755; Pub. L. 99-514, title XII,
Sec. 1221(b)(1), (2), (3)(D), Oct. 22, 1986, 100 Stat. 2551, 2553;
Pub. L. 100-647, title I, Sec. 1012(i)(1)-(3)(B), (4), (5),
(7)-(9), (21), title VI, Sec. 6135(a), Nov. 10, 1988, 102 Stat.
3507-3509, 3511, 3721; Pub. L. 101-239, title VII, Sec. 7816(p),
Dec. 19, 1989, 103 Stat. 2423; Pub. L. 105-277, div. J, title I,
Sec. 1005(b)(1), (3), Oct. 21, 1998, 112 Stat. 2681-893, 2681-899;
Pub. L. 106-170, title V, Sec. 503(a), (b), Dec. 17, 1999, 113
Stat. 1921; Pub. L. 107-147, title VI, Sec. 614(a)(1), Mar. 9,
2002, 116 Stat. 61.)
-MISC1-
AMENDMENTS
2002 - Subsec. (e)(10). Pub. L. 107-147 substituted "January 1,
2007" for "January 1, 2002" and "December 31, 2006" for "December
31, 2001".
1999 - Subsec. (e)(10). Pub. L. 106-170 substituted "taxable
years" for "the first taxable year", "January 1, 2002" for "January
1, 2000", and "within which any such" for "within which such", and
inserted at end "If this subsection does not apply to a taxable
year of a foreign corporation beginning after December 31, 2001
(and taxable years of United States shareholders ending with or
within such taxable year), then, notwithstanding the preceding
sentence, subsection (a) shall be applied to such taxable years in
the same manner as it would if the taxable year of the foreign
corporation began in 1998."
1998 - Subsec. (a). Pub. L. 105-277, Sec. 1005(b)(1)(A), amended
heading and text of subsec. (a) generally. Prior to amendment, text
read as follows: "For purposes of section 952(a)(1), the term
'insurance income' means any income which -
"(1) is attributable to the issuing (or reinsuring) of any
insurance or annuity contract -
"(A) in connection with property in, liability arising out of
activity in, or in connection with the lives or health of
residents of, a country other than the country under the laws
of which the controlled foreign corporation is created or
organized, or
"(B) in connection with risks not described in subparagraph
(A) as the result of any arrangement whereby another
corporation receives a substantially equal amount of premiums
or other consideration in respect of issuing (or reinsuring) a
contract described in subparagraph (A), and
"(2) would (subject to the modifications provided by paragraphs
(1) and (2) of subsection (b)) be taxed under subchapter L of
this chapter if such income were the income of a domestic
insurance company."
Subsec. (b)(3), (4). Pub. L. 105-277, Sec. 1005(b)(3), added par.
(3) and redesignated former par. (3) as (4).
Subsec. (e). Pub. L. 105-277, Sec. 1005(b)(1)(B), added subsec.
(e).
1989 - Subsec. (d)(3). Pub. L. 101-239 substituted "for purposes
of section 1503(d) without regard to paragraph (2)(B) thereof" for
"(as defined in section 1503(d))".
1988 - Subsec. (b)(1). Pub. L. 100-647, Sec. 1012(i)(7)(A),
redesignated par. (2) as (1) and struck out former par. (1) which
read as follows: "A corporation which would, if it were a domestic
insurance corporation, be taxable under part II of subchapter L
shall apply subsection (a) as if it were taxable under part III of
subchapter L."
Subsec. (b)(1)(A). Pub. L. 100-647, Sec. 1012(i)(7)(B), added
subpar. (A) and struck out former subpar. (A) which read as
follows: "The special life insurance company deduction and the
small life insurance company deduction."
Subsec. (b)(2) to (4). Pub. L. 100-647, Sec. 1012(i)(7)(A), (C),
redesignated pars. (3) and (4) as (2) and (3), respectively, and
struck out "(other than those taken into account under paragraph
(3))" after "and deductions" in par. (3). Former par. (2)
redesignated (1).
Subsec. (c)(1)(C). Pub. L. 100-647, Sec. 1012(i)(2)(A), added
subpar. (C).
Subsec. (c)(2). Pub. L. 100-647, Sec. 1012(i)(3)(A), (4)(B), (5),
substituted "insurance income (within the meaning of subsection
(a)) attributable" for "insurance income attributable", "with
respect to which the person (directly or indirectly) insured is"
for "with respect to which the primary insured is", and "related
person" for "related person (within the meaning of section
954(d)(3))".
Subsec. (c)(3)(A). Pub. L. 100-647, Sec. 1012(i)(3)(B), (4)(B),
substituted "persons who are (directly or indirectly) insured" for
"persons who are the primary insured" and "to any such person" for
"(within the meaning of section 954(d)(3)) to any such primary
insured".
Subsec. (c)(3)(B). Pub. L. 100-647, Sec. 1012(i)(8), substituted
"related person insurance income (determined on a gross basis)" for
"related person insurance income" and "its insurance income (as so
determined)" for "its insurance income".
Subsec. (c)(3)(C). Pub. L. 100-647, Sec. 1012(i)(1)(A), (9),
substituted "all benefits (other than with respect to section 884)"
for "all benefits" and "granted by the United States under any
treaty" for "under any income tax treaty" in cl. (i)(II) and
inserted at end "An election under this subparagraph made for any
taxable year shall not be effective if the corporation (or any
predecessor thereof) was a disqualified corporation for the taxable
year for which the election was made or for any prior taxable year
beginning after 1986."
Subsec. (c)(3)(D)(i). Pub. L. 100-647, Sec. 1012(i)(1)(B),
substituted "Period during which election in effect" for "Election
irrevocable" in heading and amended text generally. Prior to
amendment, text read as follows: "Any election under subparagraph
(C) shall apply to the taxable year for which made and all
subsequent taxable years unless revoked with the consent of the
Secretary."
Subsec. (c)(3)(E). Pub. L. 100-647, Sec. 1012(i)(1)(C), added
subpar. (E).
Subsec. (c)(5). Pub. L. 100-647, Sec. 1012(i)(2)(B), added par.
(5) and redesignated former par. (5) as (6).
Subsec. (c)(6). Pub. L. 100-647, Sec. 1012(i)(4)(A), added par.
(6) and redesignated former par. (6) as (7).
Pub. L. 100-647, Sec. 1012(i)(2)(B), redesignated former par. (5)
as (6).
Subsec. (c)(7). Pub. L. 100-647, Sec. 1012(i)(21), added par. (7)
and struck out former par. (7) "Regulations", which read as
follows: "The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including
regulations preventing the avoidance of this subsection through
cross insurance arrangements or otherwise."
Pub. L. 100-647, Sec. 1012(i)(4)(A), redesignated former par. (6)
as (7).
Subsec. (c)(8). Pub. L. 100-647, Sec. 1012(i)(21), added par.
(8).
Subsec. (d). Pub. L. 100-647, Sec. 6135(a), added subsec. (d).
1986 - Pub. L. 99-514, Sec. 1221(b)(3)(D), substituted "Insurance
income" for "Income from insurance of United States risks" in
section catchline.
Subsec. (a). Pub. L. 99-514, Sec. 1221(b)(1), amended subsec. (a)
generally, substituting provisions defining "insurance income" for
former provisions defining "income derived from the insurance of
United States risks".
Subsec. (c). Pub. L. 99-514, Sec. 1221(b)(2), added subsec. (c).
1984 - Subsec. (a)(2). Pub. L. 98-369, Sec. 211(b)(13)(D),
substituted "and (2)" for ", (2), and (3)".
Subsec. (b)(1). Pub. L. 98-369, Sec. 211(b)(13)(A), redesignated
par. (2) as (1). Former par. (1), which provided that the
application of part I of subchapter L of this chapter, life
insurance company taxable income was the gain from operations as
defined in section 809(b), was struck out.
Subsec. (b)(2). Pub. L. 98-369, Sec. 211(b)(13)(B), in amending
par. (2) generally, substituted
"(A) The special life insurance company deduction and the small
life insurance company deduction.
"(B) Section 805(a)(5) (relating to operations loss deduction).
"(C) Section 832(c)(5) (relating to certain capital losses)."
for
"(A) Section 809(d)(4) (operations loss deduction).
"(B) Section 809(d)(5) (certain nonparticipating contracts).
"(C) Section 809(d)(6) (group life, accident, and health
insurance)."
and struck out
"(D) Section 809(d)(10) (small business deduction).
"(E) Section 817(b) (gain on property held on December 31,
1958, and certain substituted property acquired after 1958).
"(F) Section 832(c)(5) (certain capital losses)."
Pub. L. 98-369, Sec. 211(b)(13)(A), redesignated par. (3) as (2).
Former par. (2) redesignated (1).
Subsec. (b)(3). Pub. L. 98-369, Sec. 211(b)(13)(A), redesignated
par. (4) as (3). Former par. (3) redesignated (2).
Subsec. (b)(3)(A). Pub. L. 98-369, Sec. 211(b)(13)(C)(i),
substituted "section 803(a)(1)" for "section 809(c)(1)".
Subsec. (b)(3)(B). Pub. L. 98-369, Sec. 211(b)(13)(C)(ii),
substituted "section 803(a)(2)" for "section 809(c)(2)".
Subsec. (b)(3)(C). Pub. L. 98-369, Sec. 211(b)(13)(C)(iii),
substituted "section 805(a)(2)" for "section 809(d)(2)".
Subsec. (b)(4), (5). Pub. L. 98-369, Sec. 211(b)(13)(A), (E),
redesignated par. (5) as (4) and substituted "paragraph (3)" for
"paragraph (4)". Former par. (4) redesignated (3).
1976 - Subsec. (b)(5). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1966 - Subsec. (b)(3)(F). Pub. L. 89-809 substituted "832(c)(5)"
for "832(b)(5)".
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title VI, Sec. 614(c), Mar. 9, 2002, 116 Stat.
62, provided that: "The amendments made by this section [amending
this section and section 954 of this title] shall apply to taxable
years beginning after December 31, 2001."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 503(c), Dec. 17, 1999, 113 Stat.
1921, provided that: "The amendments made by this section [amending
this section and section 954 of this title] shall apply to taxable
years beginning after December 31, 1999."
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
Section 1012(i)(3)(C) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section] to the
extent such amendments add the phrase '(directly or indirectly)'
shall apply only to taxable years beginning after December 31,
1987."
Amendment by section 1012(i)(1), (2), (4), (5), (7)-(9), (21) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L.
99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.
Section 6135(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1986, except as
otherwise provided, see section 1221(g) of Pub. L. 99-514, set out
as a note under section 954 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 512, 884, 898, 904, 952,
954, 956, 957, 6046 of this title.
-End-
-CITE-
26 USC Sec. 954 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 954. Foreign base company income
-STATUTE-
(a) Foreign base company income
For purposes of section 952(a)(2), the term "foreign base company
income" means for any taxable year the sum of -
(1) the foreign personal holding company income for the taxable
year (determined under subsection (c) and reduced as provided in
subsection (b)(5)),
(2) the foreign base company sales income for the taxable year
(determined under subsection (d) and reduced as provided in
subsection (b)(5)),
(3) the foreign base company services income for the taxable
year (determined under subsection (e) and reduced as provided in
subsection (b)(5)),
(4) the foreign base company shipping income for the taxable
year (determined under subsection (f) and reduced as provided in
subsection (b)(5)), and
(5) the foreign base company oil related income for the taxable
year (determined under subsection (g) and reduced as provided in
subsection (b)(5)).
(b) Exclusion and special rules
[(1) Repealed. Pub. L. 94-12, title VI, Sec. 602(c)(1), Mar. 29,
1975, 89 Stat. 58]
[(2) Repealed. Pub. L. 99-514, title XII, Sec. 1221(c)(1), Oct.
22, 1986, 100 Stat. 2553]
(3) De minimis, etc., rules
For purposes of subsection (a) and section 953 -
(A) De minimis rule
If the sum of foreign base company income (determined without
regard to paragraph (5)) and the gross insurance income for the
taxable year is less than the lesser of -
(i) 5 percent of gross income, or
(ii) $1,000,000,
no part of the gross income for the taxable year shall be
treated as foreign base company income or insurance income.
(B) Foreign base company income and insurance income in excess
of 70 percent of gross income
If the sum of the foreign base company income (determined
without regard to paragraph (5)) and the gross insurance income
for the taxable year exceeds 70 percent of gross income, the
entire gross income for the taxable year shall, subject to the
provisions of paragraphs (4) and (5), be treated as foreign
base company income or insurance income (whichever is
appropriate).
(C) Gross insurance income
For purposes of subparagraphs (A) and (B), the term "gross
insurance income" means any item of gross income taken into
account in determining insurance income under section 953.
(4) Exception for certain income subject to high foreign taxes
For purposes of subsection (a) and section 953, foreign base
company income and insurance income shall not include any item of
income received by a controlled foreign corporation if the
taxpayer establishes to the satisfaction of the Secretary that
such income was subject to an effective rate of income tax
imposed by a foreign country greater than 90 percent of the
maximum rate of tax specified in section 11. The preceding
sentence shall not apply to foreign base company oil-related
income described in subsection (a)(5).
(5) Deductions to be taken into account
For purposes of subsection (a), the foreign personal holding
company income, the foreign base company sales income, the
foreign base company services income,,(!1) the foreign base
company shipping income, and the foreign base company oil related
income shall be reduced, under regulations prescribed by the
Secretary so as to take into account deductions (including taxes)
properly allocable to such income. Except to the extent provided
in regulations prescribed by the Secretary, any interest which is
paid or accrued by the controlled foreign corporation to any
United States shareholder in such corporation (or any controlled
foreign corporation related to such a shareholder) shall be
allocated first to foreign personal holding company income which
is passive income (within the meaning of section 904(d)(2)) of
such corporation to the extent thereof. The Secretary may, by
regulations, provide that the preceding sentence shall apply also
to interest paid or accrued to other persons.
(6) Special rules for foreign base company shipping income
Income of a corporation which is a foreign base company
shipping income under paragraph (4) of subsection (a) -
(A) shall not be considered foreign base company income of
such corporation under any other paragraph of subsection (a)
and
(B) if distributed through a chain of ownership described
under section 958(a), shall not be included in foreign base
company income of another controlled foreign corporation in
such chain.
(7) Special exclusion for foreign base company shipping income
Income of a corporation which is foreign base company shipping
income under paragraph (4) of subsection (a) shall be excluded
from foreign base company income if derived by a controlled
foreign corporation from, or in connection with, the use (or
hiring or leasing for use) of an aircraft or vessel in foreign
commerce between two points within the foreign country in which
such corporation is created or organized and such aircraft or
vessel is registered.
(8) Foreign base company oil related income not treated as
another kind of base company income
Income of a corporation which is foreign base company oil
related income shall not be considered foreign base company
income of such corporation under paragraph (2),(!2) or (3) of
subsection (a).
(c) Foreign personal holding company income
(1) In general
For purposes of subsection (a)(1), the term "foreign personal
holding company income" means the portion of the gross income
which consists of:
(A) Dividends, etc.
Dividends, interest, royalties, rents, and annuities.
(B) Certain property transactions
The excess of gains over losses from the sale or exchange of
property -
(i) which gives rise to income described in subparagraph
(A) (after application of paragraph (2)(A)) other than
property which gives rise to income not treated as foreign
personal holding company income by reason of subsection (h)
or (i) for the taxable year,
(ii) which is an interest in a trust, partnership, or
REMIC, or
(iii) which does not give rise to any income.
Gains and losses from the sale or exchange of any property
which, in the hands of the controlled foreign corporation, is
property described in section 1221(a)(1) shall not be taken
into account under this subparagraph.
(C) Commodities transactions
The excess of gains over losses from transactions (including
futures, forward, and similar transactions) in any commodities.
This subparagraph shall not apply to gains or losses which -
(i) arise out of bona fide hedging transactions reasonably
necessary to the conduct of any business by a producer,
processor, merchant, or handler of a commodity in the manner
in which such business is customarily and usually conducted
by others,
(ii) are active business gains or losses from the sale of
commodities, but only if substantially all of the controlled
foreign corporation's business is as an active producer,
processor, merchant, or handler of commodities, or
(iii) are foreign currency gains or losses (as defined in
section 988(b)) attributable to any section 988 transactions.
(D) Foreign currency gains
The excess of foreign currency gains over foreign currency
losses (as defined in section 988(b)) attributable to any
section 988 transactions. This subparagraph shall not apply in
the case of any transaction directly related to the business
needs of the controlled foreign corporation.
(E) Income equivalent to interest
Any income equivalent to interest, including income from
commitment fees (or similar amounts) for loans actually made.
(F) Income from notional principal contracts
Net income from notional principal contracts.(!3) Any item of
income, gain, deduction, or loss from a notional principal
contract entered into for purposes of hedging any item
described in any preceding subparagraph shall not be taken into
account for purposes of this subparagraph but shall be taken
into account under such other subparagraph.
(G) Payments in lieu of dividends
Payments in lieu of dividends which are made pursuant to an
agreement to which section 1058 applies.
(2) Exception for certain amounts
(A) Rents and royalties derived in active business
Foreign personal holding company income shall not include
rents and royalties which are derived in the active conduct of
a trade or business and which are received from a person other
than a related person (within the meaning of subsection
(d)(3)).
(B) Certain export financing
Foreign personal holding company income shall not include any
interest which is derived in the conduct of a banking business
and which is export financing interest (as defined in section
904(d)(2)(G)).
(C) Exception for dealers
Except as provided by regulations, in the case of a regular
dealer in property which is property described in paragraph
(1)(B), forward contracts, option contracts, or similar
financial instruments (including notional principal contracts
and all instruments referenced to commodities), there shall not
be taken into account in computing foreign personal holding
company income -
(i) any item of income, gain, deduction, or loss (other
than any item described in subparagraph (A), (E), or (G) of
paragraph (1)) from any transaction (including hedging
transactions) entered into in the ordinary course of such
dealer's trade or business as such a dealer, and
(ii) if such dealer is a dealer in securities (within the
meaning of section 475), any interest or dividend or
equivalent amount described in subparagraph (E) or (G) of
paragraph (1) from any transaction (including any hedging
transaction or transaction described in section 956(c)(2)(J))
entered into in the ordinary course of such dealer's trade or
business as such a dealer in securities, but only if the
income from the transaction is attributable to activities of
the dealer in the country under the laws of which the dealer
is created or organized (or in the case of a qualified
business unit described in section 989(a), is attributable to
activities of the unit in the country in which the unit both
maintains its principal office and conducts substantial
business activity).
(3) Certain income received from related persons
(A) In general
Except as provided in subparagraph (B), the term "foreign
personal holding company income" does not include -
(i) dividends and interest received from a related person
which (I) is a corporation created or organized under the
laws of the same foreign country under the laws of which the
controlled foreign corporation is created or organized, and
(II) has a substantial part of its assets used in its trade
or business located in such same foreign country, and
(ii) rents and royalties received from a corporation which
is a related person for the use of, or the privilege of
using, property within the country under the laws of which
the controlled foreign corporation is created or organized.
To the extent provided in regulations, payments made by a
partnership with 1 or more corporate partners shall be treated
as made by such corporate partners in proportion to their
respective interests in the partnership.
(B) Exception not to apply to items which reduce subpart F
income
Subparagraph (A) shall not apply in the case of any interest,
rent, or royalty to the extent such interest, rent, or royalty
reduces the payor's subpart F income or creates (or increases)
a deficit which under section 952(c) may reduce the subpart F
income of the payor or another controlled foreign corporation.
(C) Exception for certain dividends
Subparagraph (A)(i) shall not apply to any dividend with
respect to any stock which is attributable to earnings and
profits of the distributing corporation accumulated during any
period during which the person receiving such dividend did not
hold such stock either directly, or indirectly through a chain
of one or more subsidiaries each of which meets the
requirements of subparagraph (A)(i).
(d) Foreign base company sales income
(1) In general
For purposes of subsection (a)(2), the term "foreign base
company sales income" means income (whether in the form of
profits, commissions, fees, or otherwise) derived in connection
with the purchase of personal property from a related person and
its sale to any person, the sale of personal property to any
person on behalf of a related person, the purchase of personal
property from any person and its sale to a related person, or the
purchase of personal property from any person on behalf of a
related person where -
(A) the property which is purchased (or in the case of
property sold on behalf of a related person, the property which
is sold) is manufactured, produced, grown, or extracted outside
the country under the laws of which the controlled foreign
corporation is created or organized, and
(B) the property is sold for use, consumption, or disposition
outside such foreign country, or, in the case of property
purchased on behalf of a related person, is purchased for use,
consumption, or disposition outside such foreign country.
For purposes of this subsection, personal property does not
include agricultural commodities which are not grown in the
United States in commercially marketable quantities.
(2) Certain branch income
For purposes of determining foreign base company sales income
in situations in which the carrying on of activities by a
controlled foreign corporation through a branch or similar
establishment outside the country of incorporation of the
controlled foreign corporation has substantially the same effect
as if such branch or similar establishment were a wholly owned
subsidiary corporation deriving such income, under regulations
prescribed by the Secretary the income attributable to the
carrying on of such activities of such branch or similar
establishment shall be treated as income derived by a wholly
owned subsidiary of the controlled foreign corporation and shall
constitute foreign base company sales income of the controlled
foreign corporation.
(3) Related person defined
For purposes of this section, a person is a related person with
respect to a controlled foreign corporation, if -
(A) such person is an individual, corporation, partnership,
trust, or estate which controls, or is controlled by, the
controlled foreign corporation, or
(B) such person is a corporation, partnership, trust, or
estate which is controlled by the same person or persons which
control the controlled foreign corporation.
For purposes of the preceding sentence, control means, with
respect to a corporation, the ownership, directly or indirectly,
of stock possessing more than 50 percent of the total voting
power of all classes of stock entitled to vote or of the total
value of stock of such corporation. In the case of a partnership,
trust, or estate, control means the ownership, directly or
indirectly, of more than 50 percent (by value) of the beneficial
interests in such partnership, trust, or estate. For purposes of
this paragraph, rules similar to the rules of section 958 shall
apply.
(4) Special rule for certain timber products
For purposes of subsection (a)(2), the term "foreign base
company sales income" includes any income (whether in the form of
profits, commissions, fees, or otherwise) derived in connection
with -
(A) the sale of any unprocessed timber referred to in section
865(b), or
(B) the milling of any such timber outside the United States.
Subpart G shall not apply to any amount treated as subpart F
income by reason of this paragraph.
(e) Foreign base company services income
(1) In general
For purposes of subsection (a)(3), the term "foreign base
company services income" means income (whether in the form of
compensation, commissions, fees, or otherwise) derived in
connection with the performance of technical, managerial,
engineering, architectural, scientific, skilled, industrial,
commercial, or like services which -
(A) are performed for or on behalf of any related person
(within the meaning of subsection (d)(3)), and
(B) are performed outside the country under the laws of which
the controlled foreign corporation is created or organized.
(2) Exception
Paragraph (1) shall not apply to income derived in connection
with the performance of services which are directly related to -
(A) the sale or exchange by the controlled foreign
corporation of property manufactured, produced, grown, or
extracted by it and which are performed before the time of the
sale or exchange, or
(B) an offer or effort to sell or exchange such property.
Paragraph (1) shall also not apply to income which is exempt
insurance income (as defined in section 953(e)) or which is not
treated as foreign personal holding income by reason of
subsection (c)(2)(C)(ii), (h), or (i).
(f) Foreign base company shipping income
For purposes of subsection (a)(4), the term "foreign base company
shipping income" means income derived from, or in connection with,
the use (or hiring or leasing for use) of any aircraft or vessel in
foreign commerce, or from, or in connection with the performance of
services directly related to the use of any such aircraft, or
vessel, or from the sale, exchange, or other disposition of any
such aircraft or vessel. Such term includes, but is not limited to
-
(1) dividends and interest received from a foreign corporation
in respect of which taxes are deemed paid under section 902, and
gain from the sale, exchange, or other disposition of stock or
obligations of such a foreign corporation to the extent that such
dividends, interest, and gains are attributable to foreign base
company shipping income, and
(2) that portion of the distributive share of the income of a
partnership attributable to foreign base company shipping income.
Such term includes any income derived from a space or ocean
activity (as defined in section 863(d)(2)). Except as provided in
paragraph (1), such term shall not include any dividend or interest
income which is foreign personal holding company income (as defined
in subsection (c)).
(g) Foreign base company oil related income
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the term
"foreign base company oil related income" means foreign oil
related income (within the meaning of paragraphs (2) and (3) of
section 907(c)) other than income derived from a source within a
foreign country in connection with -
(A) oil or gas which was extracted from an oil or gas well
located in such foreign country, or
(B) oil, gas, or a primary product of oil or gas which is
sold by the foreign corporation or a related person for use or
consumption within such country or is loaded in such country on
a vessel or aircraft as fuel for such vessel or aircraft.
Such term shall not include any foreign personal holding company
income (as defined in subsection (c)).
(2) Paragraph (1) applies only where corporation has produced
1,000 barrels per day or more
(A) In general
The term "foreign base company oil related income" shall not
include any income of a foreign corporation if such corporation
is not a large oil producer for the taxable year.
(B) Large oil producer
For purposes of subparagraph (A), the term "large oil
producer" means any corporation if, for the taxable year or for
the preceding taxable year, the average daily production of
foreign crude oil and natural gas of the related group which
includes such corporation equaled or exceeded 1,000 barrels.
(C) Related group
The term "related group" means a group consisting of the
foreign corporation and any other person who is a related
person with respect to such corporation.
(D) Average daily production of foreign crude oil and natural
gas
For purposes of this paragraph, the average daily production
of foreign crude oil or natural gas of any related group for
any taxable year (and the conversion of cubic feet of natural
gas into barrels) shall be determined under rules similar to
the rules of section 613A except that only crude oil or natural
gas from a well located outside the United States shall be
taken into account.
(h) Special rule for income derived in the active conduct of
banking, financing, or similar businesses
(1) In general
For purposes of subsection (c)(1), foreign personal holding
company income shall not include qualified banking or financing
income of an eligible controlled foreign corporation.
(2) Eligible controlled foreign corporation
For purposes of this subsection -
(A) In general
The term "eligible controlled foreign corporation" means a
controlled foreign corporation which -
(i) is predominantly engaged in the active conduct of a
banking, financing, or similar business, and
(ii) conducts substantial activity with respect to such
business.
(B) Predominantly engaged
A controlled foreign corporation shall be treated as
predominantly engaged in the active conduct of a banking,
financing, or similar business if -
(i) more than 70 percent of the gross income of the
controlled foreign corporation is derived directly from the
active and regular conduct of a lending or finance business
from transactions with customers which are not related
persons,
(ii) it is engaged in the active conduct of a banking
business and is an institution licensed to do business as a
bank in the United States (or is any other corporation not so
licensed which is specified by the Secretary in regulations),
or
(iii) it is engaged in the active conduct of a securities
business and is registered as a securities broker or dealer
under section 15(a) of the Securities Exchange Act of 1934 or
is registered as a Government securities broker or dealer
under section 15C(a) of such Act (or is any other corporation
not so registered which is specified by the Secretary in
regulations).
(3) Qualified banking or financing income
For purposes of this subsection -
(A) In general
The term "qualified banking or financing income" means income
of an eligible controlled foreign corporation which -
(i) is derived in the active conduct of a banking,
financing, or similar business by -
(I) such eligible controlled foreign corporation, or
(II) a qualified business unit of such eligible
controlled foreign corporation,
(ii) is derived from one or more transactions -
(I) with customers located in a country other than the
United States, and
(II) substantially all of the activities in connection
with which are conducted directly by the corporation or
unit in its home country, and
(iii) is treated as earned by such corporation or unit in
its home country for purposes of such country's tax laws.
(B) Limitation on nonbanking and nonsecurities businesses
No income of an eligible controlled foreign corporation not
described in clause (ii) or (iii) of paragraph (2)(B) (or of a
qualified business unit of such corporation) shall be treated
as qualified banking or financing income unless more than 30
percent of such corporation's or unit's gross income is derived
directly from the active and regular conduct of a lending or
finance business from transactions with customers which are not
related persons and which are located within such corporation's
or unit's home country.
(C) Substantial activity requirement for cross border income
The term "qualified banking or financing income" shall not
include income derived from 1 or more transactions with
customers located in a country other than the home country of
the eligible controlled foreign corporation or a qualified
business unit of such corporation unless such corporation or
unit conducts substantial activity with respect to a banking,
financing, or similar business in its home country.
(D) Determinations made separately
For purposes of this paragraph, the qualified banking or
financing income of an eligible controlled foreign corporation
and each qualified business unit of such corporation shall be
determined separately for such corporation and each such unit
by taking into account -
(i) in the case of the eligible controlled foreign
corporation, only items of income, deduction, gain, or loss
and activities of such corporation not properly allocable or
attributable to any qualified business unit of such
corporation, and
(ii) in the case of a qualified business unit, only items
of income, deduction, gain, or loss and activities properly
allocable or attributable to such unit.
(4) Lending or finance business
For purposes of this subsection, the term "lending or finance
business" means the business of -
(A) making loans,
(B) purchasing or discounting accounts receivable, notes, or
installment obligations,
(C) engaging in leasing (including entering into leases and
purchasing, servicing, and disposing of leases and leased
assets),
(D) issuing letters of credit or providing guarantees,
(E) providing charge and credit card services, or
(F) rendering services or making facilities available in
connection with activities described in subparagraphs (A)
through (E) carried on by -
(i) the corporation (or qualified business unit) rendering
services or making facilities available, or
(ii) another corporation (or qualified business unit of a
corporation) which is a member of the same affiliated group
(as defined in section 1504, but determined without regard to
section 1504(b)(3)).
(5) Other definitions
For purposes of this subsection -
(A) Customer
The term "customer" means, with respect to any controlled
foreign corporation or qualified business unit, any person
which has a customer relationship with such corporation or unit
and which is acting in its capacity as such.
(B) Home country
Except as provided in regulations -
(i) Controlled foreign corporation
The term "home country" means, with respect to any
controlled foreign corporation, the country under the laws of
which the corporation was created or organized.
(ii) Qualified business unit
The term "home country" means, with respect to any
qualified business unit, the country in which such unit
maintains its principal office.
(C) Located
The determination of where a customer is located shall be
made under rules prescribed by the Secretary.
(D) Qualified business unit
The term "qualified business unit" has the meaning given such
term by section 989(a).
(E) Related person
The term "related person" has the meaning given such term by
subsection (d)(3).
(6) Coordination with exception for dealers
Paragraph (1) shall not apply to income described in subsection
(c)(2)(C)(ii) of a dealer in securities (within the meaning of
section 475) which is an eligible controlled foreign corporation
described in paragraph (2)(B)(iii).
(7) Anti-abuse rules
For purposes of applying this subsection and subsection
(c)(2)(C)(ii) -
(A) there shall be disregarded any item of income, gain,
loss, or deduction with respect to any transaction or series of
transactions one of the principal purposes of which is
qualifying income or gain for the exclusion under this section,
including any transaction or series of transactions a principal
purpose of which is the acceleration or deferral of any item in
order to claim the benefits of such exclusion through the
application of this subsection,
(B) there shall be disregarded any item of income, gain,
loss, or deduction of an entity which is not engaged in regular
and continuous transactions with customers which are not
related persons,
(C) there shall be disregarded any item of income, gain,
loss, or deduction with respect to any transaction or series of
transactions utilizing, or doing business with -
(i) one or more entities in order to satisfy any home
country requirement under this subsection, or
(ii) a special purpose entity or arrangement, including a
securitization, financing, or similar entity or arrangement,
if one of the principal purposes of such transaction or series
of transactions is qualifying income or gain for the exclusion
under this subsection, and
(D) a related person, an officer, a director, or an employee
with respect to any controlled foreign corporation (or
qualified business unit) which would otherwise be treated as a
customer of such corporation or unit with respect to any
transaction shall not be so treated if a principal purpose of
such transaction is to satisfy any requirement of this
subsection.
(8) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection, subsection (c)(1)(B)(i), subsection (c)(2)(C)(ii),
and the last sentence of subsection (e)(2).
(9) Application
This subsection, subsection (c)(2)(C)(ii), and the last
sentence of subsection (e)(2) shall apply only to taxable years
of a foreign corporation beginning after December 31, 1998, and
before January 1, 2007, and to taxable years of United States
shareholders with or within which any such taxable year of such
foreign corporation ends.
(i) Special rule for income derived in the active conduct of
insurance business
(1) In general
For purposes of subsection (c)(1), foreign personal holding
company income shall not include qualified insurance income of a
qualifying insurance company.
(2) Qualified insurance income
The term "qualified insurance income" means income of a
qualifying insurance company which is -
(A) received from a person other than a related person
(within the meaning of subsection (d)(3)) and derived from the
investments made by a qualifying insurance company or a
qualifying insurance company branch of its reserves allocable
to exempt contracts or of 80 percent of its unearned premiums
from exempt contracts (as both are determined in the manner
prescribed under paragraph (4)), or
(B) received from a person other than a related person
(within the meaning of subsection (d)(3)) and derived from
investments made by a qualifying insurance company or a
qualifying insurance company branch of an amount of its assets
allocable to exempt contracts equal to -
(i) in the case of property, casualty, or health insurance
contracts, one-third of its premiums earned on such insurance
contracts during the taxable year (as defined in section
832(b)(4)), and
(ii) in the case of life insurance or annuity contracts, 10
percent of the reserves described in subparagraph (A) for
such contracts.
(3) Principles for determining insurance income
Except as provided by the Secretary, for purposes of
subparagraphs (A) and (B) of paragraph (2) -
(A) in the case of any contract which is a separate
account-type contract (including any variable contract not
meeting the requirements of section 817), income credited under
such contract shall be allocable only to such contract, and
(B) income not allocable under subparagraph (A) shall be
allocated ratably among contracts not described in subparagraph
(A).
(4) Methods for determining unearned premiums and reserves
For purposes of paragraph (2)(A) -
(A) Property and casualty contracts
The unearned premiums and reserves of a qualifying insurance
company or a qualifying insurance company branch with respect
to property, casualty, or health insurance contracts shall be
determined using the same methods and interest rates which
would be used if such company or branch were subject to tax
under subchapter L, except that -
(i) the interest rate determined for the functional
currency of the company or branch, and which, except as
provided by the Secretary, is calculated in the same manner
as the Federal mid-term rate under section 1274(d), shall be
substituted for the applicable Federal interest rate, and
(ii) such company or branch shall use the appropriate
foreign loss payment pattern.
(B) Life insurance and annuity contracts
(i) In general
Except as provided in clause (ii), the amount of the
reserve of a qualifying insurance company or qualifying
insurance company branch for any life insurance or annuity
contract shall be equal to the greater of -
(I) the net surrender value of such contract (as defined
in section 807(e)(1)(A)), or
(II) the reserve determined under paragraph (5).
(ii) Ruling request, etc.
The amount of the reserve under clause (i) shall be the
foreign statement reserve for the contract (less any
catastrophe, deficiency, equalization, or similar reserves),
if, pursuant to a ruling request submitted by the taxpayer or
as provided in published guidance, the Secretary determines
that the factors taken into account in determining the
foreign statement reserve provide an appropriate means of
measuring income.
(C) Limitation on reserves
In no event shall the reserve determined under this paragraph
for any contract as of any time exceed the amount which would
be taken into account with respect to such contract as of such
time in determining foreign statement reserves (less any
catastrophe, deficiency, equalization, or similar reserves).
(5) Amount of reserve
The amount of the reserve determined under this paragraph with
respect to any contract shall be determined in the same manner as
it would be determined if the qualifying insurance company or
qualifying insurance company branch were subject to tax under
subchapter L, except that in applying such subchapter -
(A) the interest rate determined for the functional currency
of the company or branch, and which, except as provided by the
Secretary, is calculated in the same manner as the Federal
mid-term rate under section 1274(d), shall be substituted for
the applicable Federal interest rate,
(B) the highest assumed interest rate permitted to be used in
determining foreign statement reserves shall be substituted for
the prevailing State assumed interest rate, and
(C) tables for mortality and morbidity which reasonably
reflect the current mortality and morbidity risks in the
company's or branch's home country shall be substituted for the
mortality and morbidity tables otherwise used for such
subchapter.
The Secretary may provide that the interest rate and mortality
and morbidity tables of a qualifying insurance company may be
used for 1 or more of its qualifying insurance company branches
when appropriate.
(6) Definitions
For purposes of this subsection, any term used in this
subsection which is also used in section 953(e) shall have the
meaning given such term by section 953.
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1009;
amended Pub. L. 91-172, title IX, Sec. 909(a), Dec. 30, 1969, 83
Stat. 718; Pub. L. 94-12, title VI, Sec. 602(b), (c)(1), (2),
(d)(1), (e), Mar. 29, 1975, 89 Stat. 58, 60, 64; Pub. L. 94-455,
title X, Secs. 1023(a), 1024(a), title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1620, 1834; Pub. L. 97-248, title II, Sec.
212(a)-(e), Sept. 3, 1982, 96 Stat. 451, 452; Pub. L. 98-369, div.
A, title I, Sec. 137(a), title VII, Sec. 712(f), July 18, 1984, 98
Stat. 672, 947; Pub. L. 99-514, title XII, Secs. 1201(c),
1221(a)(1), (b)(3)(B), (c)(1)-(3)(A), (d), (e), 1223(a), title
XVIII, Sec. 1810(k), Oct. 22, 1986, 100 Stat. 2525, 2549, 2553,
2557, 2830; Pub. L. 100-647, title I, Secs. 1012(i)(12), (14)(A),
(18), (20), (25)(B), 1018(u)(38), Nov. 10, 1988, 102 Stat.
3509-3512, 3592; Pub. L. 101-239, title VII, Sec. 7811(i)(3), Dec.
19, 1989, 103 Stat. 2409; Pub. L. 103-66, title XIII, Secs.
13233(a)(1), 13235(a)(3), (b), 13239(d), Aug. 10, 1993, 107 Stat.
502, 504, 505, 509; Pub. L. 104-188, title I, Sec. 1704(t)(25),
Aug. 20, 1996, 110 Stat. 1888; Pub. L. 105-34, title X, Sec.
1051(a), (b), title XI, Sec. 1175(a), (b), Aug. 5, 1997, 111 Stat.
940, 990, 993; Pub. L. 105-277, div. J, title I, Sec. 1005(a),
(b)(2), (c)-(e), title IV, Sec. 4003(j), Oct. 21, 1998, 112 Stat.
2681-890, 2681-897, 2681-899, 2681-900, 2681-910; Pub. L. 106-170,
title V, Secs. 503(a), 532(c)(2)(Q), Dec. 17, 1999, 113 Stat. 1921,
1931; Pub. L. 107-147, title IV, Sec. 417(24)(B)(ii), title VI,
Sec. 614(a)(2), (b)(1), Mar. 9, 2002, 116 Stat. 57, 61.)
-REFTEXT-
REFERENCES IN TEXT
Sections 15(a) and 15C(a) of the Securities Exchange Act of 1934,
referred to in subsec. (h)(2)(B)(iii), are classified to sections
78o(a) and 78o-5(a), respectively, of Title 15, Commerce and Trade.
-MISC1-
AMENDMENTS
2002 - Subsec. (c)(1)(B). Pub. L. 107-147, Sec. 417(24)(B)(ii),
which directed the amendment of Pub. L. 106-170, Sec. 532(c)(2)(Q),
was executed to that section as if the amendment were retroactive
to the effective date of the amendment by Pub. L. 106-170 to
reflect the probable intent of Congress. See 1999 Amendment note
below.
Subsec. (h)(9). Pub. L. 107-147, Sec. 614(a)(2), substituted
"January 1, 2007" for "January 1, 2002".
Subsec. (i)(4)(B). Pub. L. 107-147, Sec. 614(b)(1), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "The amount of the reserve of a
qualifying insurance company or qualifying insurance company branch
for any life insurance or annuity contract shall be equal to the
greater of -
"(i) the net surrender value of such contract (as defined in
section 807(e)(1)(A)), or
"(ii) the reserve determined under paragraph (5)."
1999 - Subsec. (c)(1)(B). Pub. L. 106-170, Sec. 532(c)(2)(Q), as
amended by Pub. L. 107-147, Sec. 417(24)(B)(ii), substituted
"section 1221(a)(1)" for "section 1221(1)" in concluding
provisions.
Subsec. (h)(9). Pub. L. 106-170, Sec. 503(a), substituted
"taxable years" for "the first taxable year", "January 1, 2002" for
"January 1, 2000", and "within which any such" for "within which
such".
1998 - Subsec. (c)(1)(B)(i). Pub. L. 105-277, Sec. 1005(e),
inserted "other than property which gives rise to income not
treated as foreign personal holding company income by reason of
subsection (h) or (i) for the taxable year" before comma at end.
Subsec. (c)(2)(C). Pub. L. 105-277, Sec. 1005(c), amended heading
and text of subpar. (C), generally. Prior to amendment, text read
as follows: "Except as provided in subparagraph (A), (E), or (G) of
paragraph (1) or by regulations, in the case of a regular dealer in
property (within the meaning of paragraph (1)(B)), forward
contracts, option contracts, or similar financial instruments
(including notional principal contracts and all instruments
referenced to commodities), there shall not be taken into account
in computing foreign personal holding income any item of income,
gain, deduction, or loss from any transaction (including hedging
transactions) entered into in the ordinary course of such dealer's
trade or business as such a dealer."
Subsec. (e)(2). Pub. L. 105-277, Sec. 1005(d), inserted "or" at
end of subpar. (A), substituted a period for ", or" at end of
subpar. (B), and inserted concluding provisions.
Subsec. (e)(2)(C). Pub. L. 105-277, Sec. 4003(j), substituted
"(h)(9)" for "(h)(8)".
Pub. L. 105-277, Sec. 1005(d), struck out subpar. (C) which read
as follows: "in the case of taxable years described in subsection
(h)(9), the active conduct by a controlled foreign corporation of a
banking, financing, insurance, or similar business, but only if the
corporation is predominantly engaged in the active conduct of such
business (within the meaning of subsection (h)(3)) or is a
qualifying insurance company."
Subsec. (h). Pub. L. 105-277, Sec. 1005(a), amended heading and
text of subsec. (h) generally. Prior to amendment, text consisted
of pars. (1) to (9) relating to special rule for income derived in
active conduct of banking, financing, or similar businesses,
principles for determining applicable income, meaning of
"predominantly engaged" for purposes of the special rule, methods
of determining unearned premiums and reserves, definitions of
certain terms for purposes of subsec. (h), anti-abuse rules,
coordination with section 953 of this title, and taxable year
applicability of subsec. (h).
Subsec. (i). Pub. L. 105-277, Sec. 1005(b)(2), added subsec. (i).
1997 - Subsec. (c)(1)(B). Pub. L. 105-34, Sec. 1051(a)(2), in
concluding provisions, struck out "In the case of any regular
dealer in property, gains and losses from the sale or exchange of
any such property or arising out of bona fide hedging transactions
reasonably necessary to the conduct of the business of being a
dealer in such property shall not be taken into account under this
subparagraph." before "Gains and losses" and "also" after "section
1221(1)".
Subsec. (c)(1)(F), (G). Pub. L. 105-34, Sec. 1051(a)(1), added
subpars. (F) and (G).
Subsec. (c)(2)(C). Pub. L. 105-34, Sec. 1051(b), added subpar.
(C).
Subsec. (e)(2)(C). Pub. L. 105-34, Sec. 1175(b), added subpar.
(C).
Subsec. (h). Pub. L. 105-34, Sec. 1175(a), added subsec. (h).
1996 - Subsec. (c)(3)(A)(i). Pub. L. 104-188 amended directory
language of Pub. L. 101-239, Sec. 7811(i)(3)(A). See 1989 Amendment
note below.
1993 - Subsec. (b)(8). Pub. L. 103-66, Sec. 13235(a)(3)(B),
struck out "(1)," after "such corporation under paragraph".
Subsec. (c)(3)(C). Pub. L. 103-66, Sec. 13233(a)(1), added
subpar. (C).
Subsec. (d)(4). Pub. L. 103-66, Sec. 13239(d), added par. (4).
Subsec. (f). Pub. L. 103-66, Sec. 13235(b), inserted at end of
concluding provisions "Except as provided in paragraph (1), such
term shall not include any dividend or interest income which is
foreign personal holding company income (as defined in subsection
(c))."
Subsec. (g)(1). Pub. L. 103-66, Sec. 13235(a)(3)(A), inserted at
end "Such term shall not include any foreign personal holding
company income (as defined in subsection (c))."
1989 - Subsec. (c)(3)(A). Pub. L. 101-239, Sec. 7811(i)(3)(C),
inserted at end "To the extent provided in regulations, payments
made by a partnership with 1 or more corporate partners shall be
treated as made by such corporate partners in proportion to their
respective interests in the partnership."
Subsec. (c)(3)(A)(i). Pub. L. 101-239, Sec. 7811(i)(3)(A), as
amended by Pub. L. 104-188, substituted "is a corporation created"
for "is created" after "person which (I)".
Subsec. (c)(3)(A)(ii). Pub. L. 101-239, Sec. 7811(i)(3)(B),
substituted "from a corporation which is a related person" for
"from a related person".
1988 - Subsec. (b)(6), (7). Pub. L. 100-647, Sec. 1012(i)(12),
struck out "(determined without regard to the exclusion under
paragraph (2) of this subsection)" after "paragraph (4) of
subsection (a)".
Subsec. (c)(1)(B). Pub. L. 100-647, Sec. 1012(i)(18), (20), added
cl. (ii), redesignated former cl. (ii) as (iii), added closing
provisions, and struck out former closing provisions which read as
follows: "This subparagraph shall not apply to gain from the sale
or exchange of any property which, in the hands of the taxpayer, is
property described in section 1221(1) or to gain from the sale or
exchange of any property by a regular dealer in such property."
Subsec. (c)(3)(B). Pub. L. 100-647, Sec. 1012(i)(25)(B), inserted
before period at end "or creates (or increases) a deficit which
under section 952(c) may reduce the subpart F income of the payor
or another controlled foreign corporation".
Subsec. (d)(3). Pub. L. 100-647, Sec. 1012(i)(14)(A), substituted
"more than 50 percent" for "50 percent or more" in last two
sentences.
Subsec. (e)(3). Pub. L. 100-647, Sec. 1018(u)(38), related to
execution of amendment by Pub. L. 99-514, Sec. 1221(b)(3)(B), see
1986 Amendment note below.
1986 - Subsec. (a)(5). Pub. L. 99-514, Sec. 1221(c)(3)(A)(ii),
substituted "determined under subsection (g)" for "determined under
subsection (h)".
Subsec. (b)(2). Pub. L. 99-514, Sec. 1221(c)(1), struck out par.
(2), exclusion for reinvested shipping income, which read as
follows: "For purposes of subsection (a), foreign base company
income does not include foreign base company shipping income to the
extent that the amount of such income does not exceed the increase
for the taxable year in qualified investments in foreign base
company shipping operations of the controlled foreign corporation
(as determined under subsection (g))."
Subsec. (b)(3). Pub. L. 99-514, Sec. 1223(a), amended par. (3)
generally. Prior to amendment, par. (3), special rule where foreign
base company income is less than 10 percent or more than 70 percent
of gross income, read as follows: "For purposes of subsection (a) -
"(A) If the foreign base company income (determined without
regard to paragraphs (2) and (5)) is less than 10 percent of
gross income, no part of the gross income of the taxable year
shall be treated as foreign base company income.
"(B) If the foreign base company income (determined without
regard to paragraphs (2) and (5)) exceeds 70 percent of gross
income, the entire gross income of the taxable year shall,
subject to the provisions of paragraphs (2), (4), and (5), be
treated as foreign base company income."
Subsec. (b)(4). Pub. L. 99-514, Sec. 1221(d), amended par. (4)
generally. Prior to amendment, par. (4), exception for foreign
corporations not availed of to reduce taxes, read as follows: "For
purposes of subsection (a), foreign base company income does not
include any item of income received by a controlled foreign
corporation if it is established to the satisfaction of the
Secretary that neither -
"(A) the creation or organization of such controlled foreign
corporation under the laws of the foreign country in which it is
incorporated (or, in the case of a controlled foreign corporation
which is an acquired corporation, the acquisition of such
corporation created or organized under the laws of the foreign
country in which it is incorporated), nor
"(B) the effecting of the transaction giving rise to such
income through the controlled foreign corporation,
has as one of its significant purposes a substantial reduction of
income, war profits, or excess profits or similar taxes. The
preceding sentence shall not apply to foreign base company oil
related income described in subsection (a)(5)."
Subsec. (b)(5). Pub. L. 99-514, Sec. 1201(c), inserted at end
"Except to the extent provided in regulations prescribed by the
Secretary, any interest which is paid or accrued by the controlled
foreign corporation to any United States shareholder in such
corporation (or any controlled foreign corporation related to such
a shareholder) shall be allocated first to foreign personal holding
company income which is passive income (within the meaning of
section 904(d)(2)) of such corporation to the extent thereof. The
Secretary may, by regulations, provide that the preceding sentence
shall apply also to interest paid or accrued to other persons."
Subsec. (c). Pub. L. 99-514, Sec. 1221(a)(1), amended subsec. (c)
generally, substituting pars. (1) to (3) for former provisions
which had provided: in par. (1), a reference to definition of
"foreign personal holding company income" contained in section 553;
in par. (2), that all rents would be included in "foreign personal
holding company income" without regard to whether or not such rents
constituted 50 percent or more of gross income; in par. (3), for
exclusion of certain income derived in active conduct of a trade or
business; and in par. (4), exclusion of certain income received
from related persons from being included in "foreign personal
holding company income". See subsec. (c)(3).
Subsec. (d)(3). Pub. L. 99-514, Sec. 1221(e), added subpars. (A)
and (B) and concluding provisions and struck out former subpars.
(A) to (C) and concluding provisions which read as follows:
"(A) such person is an individual, partnership, trust, or
estate which controls the controlled foreign corporation;
"(B) such person is a corporation which controls, or is
controlled by, the controlled foreign corporation; or
"(C) such person is a corporation which is controlled by the
same person or persons which control the controlled foreign
corporation.
For purposes of the preceding sentence, control means the
ownership, directly or indirectly, of stock possessing more than 50
percent of the total combined voting power of all classes of stock
entitled to vote. For purposes of this paragraph, the rules for
determining ownership of stock prescribed by section 958 shall
apply."
Subsec. (e). Pub. L. 99-514, Sec. 1810(k), in amending subsec.
(e) generally, designated existing provisions as par. (1), added
par. heading, and substituted subpar. (A) and (B) designations for
prior par. (1) and (2) designations, struck out provisions relating
to nonapplicability of preceding sentence to services performed in
connection with manufactured or grown or extracted property, and
provisions determining the place of performance of services for
purposes of paragraph (2) with respect to any policy of insurance
and reinsurance, and added pars. (2) and (3).
Subsec. (e)(3). Pub. L. 99-514, Sec. 1221(b)(3)(B), and Pub. L.
100-647, Sec. 1018(u)(38), struck out par. (3) as enacted by
section 1810(k) of Pub. L. 99-514, which read as follows: "For
purposes of paragraph (1), in the case of any services performed
with respect to any policy of insurance or reinsurance with respect
to which the primary insured is a related person (within the
meaning of section 864(d)(4)) -
"(A) such primary insured shall be treated as a related person
for purposes of paragraph (1)(A) (whether or not the requirements
of subsection (d)(3) are met),
"(B) such services shall be treated as performed in the country
within which the insured hazards, risks, losses, or liabilities
occur, and
"(C) except as otherwise provided in regulations by the
Secretary, rules similar to the rules of section 953(b) shall be
applied in determining the income from such services."
Subsec. (f). Pub. L. 99-514, Sec. 1221(c)(2), inserted last
sentence.
Subsecs. (g), (h). Pub. L. 99-514, Sec. 1221(c)(3)(A)(i),
redesignated subsec. (h) as (g) and struck out former subsec. (g),
increase in qualified investments in foreign base company shipping
operations, which read as follows: "For purposes of subsection
(b)(2), the increase for any taxable year in qualified investments
in foreign base company shipping operations of any controlled
foreign corporation is the amount by which -
"(1) the qualified investments in foreign base company shipping
operations (as defined in section 955(b)) of the controlled
foreign corporation at the close of the taxable year, exceed
"(2) the qualified investments in foreign base company shipping
operations (as so defined) of the controlled foreign corporation
at the close of the preceding taxable year."
1984 - Subsec. (e). Pub. L. 98-369, Sec. 137(a), inserted
provision that for purposes of par. (2) services performed with
respect to any insurance or reinsurance policy be treated as
performed in the country of risk.
Subsec. (h)(1). Pub. L. 98-369, Sec. 712(f), substituted
"paragraphs (2) and (3) of section 907(c)" for "section 907(c)(2)".
1982 - Subsec. (a)(5). Pub. L. 97-248, Sec. 212(a), (e), added
par. (5).
Subsec. (b)(4). Pub. L. 97-248, Sec. 212(d), inserted at end "The
preceding sentence shall not apply to foreign base company oil
related income described in subsection (a)(5)."
Subsec. (b)(5). Pub. L. 97-248, Sec. 212(b)(1), substituted ",
the foreign base company shipping income, and the foreign base
company oil related income" for "and the foreign base company
shipping income".
Subsec. (b)(8). Pub. L. 97-248, Sec. 212(b)(2), added par. (8).
Subsec. (h). Pub. L. 97-248, Sec. 212(c), added subsec. (h).
1976 - Subsecs. (b)(4), (5). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (b)(7). Pub. L. 94-455, Sec. 1024(a), added par. (7).
Subsec. (c)(3)(C). Pub. L. 94-455, Sec. 1023(a), added subpar.
(C).
1975 - Subsec. (a)(4). Pub. L. 94-12, Sec. 602(d)(1)(A), added
par. (4).
Subsec. (b)(1). Pub. L. 94-12, Sec. 602(c)(1), struck out subsec.
(b)(1) which related to the exclusion of certain dividends,
interest, and gains from qualified investments in less developed
countries.
Subsec. (b)(2). Pub. L. 94-12, Sec. 602(d)(1)(B), substituted
"foreign base company shipping income to the extent that the amount
of such income does not exceed the increase for the taxable year in
qualified investments in foreign base company shipping operations
of the controlled foreign corporation (as determined under
subsection (g))" for "income derived from, or in connection with,
the use (or hiring or leasing for use) of any aircraft or vessel in
foreign commerce, or the performance of services directly related
to the use of any such aircraft or vessel" in text and "Exclusion
for reinvested shipping income" for "Exclusion of certain shipping
income" in heading.
Subsec. (b)(3). Pub. L. 94-12, Sec. 602(d)(1)(C), (D), (e),
substituted "10 percent" for "30 percent" in heading, substituted
"paragraphs (2) and (5)" for "paragraphs (1) and (5)" and "10
percent" for "30 percent" in subpar. (A), and substituted
"paragraphs (2) and (5)" for "paragraphs (1) and (5)" and
"paragraphs (2), (4), and (5)" for "paragraphs (1), (2), (4), and
(5)" in subpar. (B).
Subsec. (b)(5). Pub. L. 94-12, Sec. 602(d)(1)(E), substituted
"the foreign base company services income, and the foreign base
company shipping income" for "and the foreign base company services
income".
Subsec. (b)(6). Pub. L. 94-12, Sec. 602(d)(1)(F), added par. (6).
Subsec. (d)(1). Pub. L. 94-12, Sec. 602(b), provided that for
purposes of subsec. (d) personal property does not include
agricultural commodities which are not grown in the United States
in commercially marketable quantities.
Subsecs. (f), (g). Pub. L. 94-12, Sec. 602(c)(2), (d)(1)(G),
added subsecs. (f) and (g).
1969 - Subsec. (b)(4). Pub. L. 91-172 inserted reference to a
foreign corporation which is an acquired corporation, and made the
effecting of a transaction giving rise to foreign base income
through the controlled foreign corporation subject to the
Secretary's power to disallow inclusion of any item of such income
where such inclusion will have one of the effects prescribed by
this section.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by section 614(a)(2), (b)(1) of Pub. L. 107-147
applicable to taxable years beginning after Dec. 31, 2001, see
section 614(c) of Pub. L. 107-147, set out as a note under section
953 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by section 503(a) of Pub. L. 106-170 applicable to
taxable years beginning after Dec. 31, 1999, see section 503(c) of
Pub. L. 106-170, set out as a note under section 953 of this title.
Amendment by section 532(c)(2)(Q) of Pub. L. 106-170 applicable
to any instrument held, acquired, or entered into, any transaction
entered into, and supplies held or acquired on or after Dec. 17,
1999, see section 532(d) of Pub. L. 106-170, set out as a note
under section 170 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by section 4003(j) of Pub. L. 105-277 effective as if
included in the provision of the Taxpayer Relief Act of 1997, Pub.
L. 105-34, to which such amendment relates, see section 4003(l) of
Pub. L. 105-277, set out as a note under section 86 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1051(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [Aug.
5, 1997]."
Section 1175(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to the
first full taxable year of a foreign corporation beginning after
December 31, 1997, and before January 1, 1999, and to taxable years
of United States shareholders with or within which such taxable
year of such foreign corporation ends."
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13233(a)(2) of Pub. L. 103-66 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years of controlled foreign corporations beginning after
September 30, 1993, and to taxable years of United States
shareholders in which or with which such taxable years of
controlled foreign corporations end."
Amendment by section 13235(a)(3) and (b) of Pub. L. 103-66
applicable to taxable years beginning after Dec. 31, 1992, see
section 13235(c) of Pub. L. 103-66, set out as a note under section
904 of this title.
Amendment by section 13239(d) of Pub. L. 103-66 applicable to
sales, exchanges, or other dispositions after Aug. 10, 1993, see
section 13239(e) of Pub. L. 103-66, set out as a note under section
865 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 1201(c) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1201(e) of Pub. L. 99-514, set out as a note
under section 904 of this title.
Section 1221(g) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(i)(13), Nov. 10, 1988, 102 Stat. 3509, provided
that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and sections 864, 952, 953, 955, and 957 of this title]
shall apply to taxable years of foreign corporations beginning
after December 31, 1986.
"(2) Special rule for repeal of exclusion for reinvestment
shipping income. -
"(A) In general. - In the case of any qualified controlled
foreign corporation -
"(i) the amendments made by subsection (c) [amending this
section and section 955 of this title] shall apply to taxable
years ending on or after January 1, 1992, and
"(ii) sections 955(a)(1)(A) and 955(a)(2)(A) of the Internal
Revenue Code of 1986 (as amended by subsection (c)(3)) shall be
applied by substituting 'ending before 1992' for 'beginning
before 1987'.
"(B) Qualified controlled foreign corporation. - For purposes
of subparagraph (A), the term 'qualified controlled foreign
corporation' means any controlled foreign corporation (as defined
in section 957 of such Code) -
"(i) if the United States agent of such corporation is a
domestic corporation incorporated on March 13, 1951, and
"(ii) if -
"(I) the certificate of incorporation of such corporation
is dated November 23, 1963, and
"(II) such corporation has a wholly owned subsidiary and
its certificate of incorporation is dated November 2, 1965.
"(3) Exception for certain reinsurance contracts. -
"(A) In general. - In the case of the 1st 3 taxable years of a
qualified controlled foreign insurer beginning after December 31,
1986, the amendments made by this section shall not apply to the
phase-in percentage of any qualified reinsurance income.
"(B) Phase-in percentage. - For purposes of subparagraph (A):
"In the case of taxable The phase-in
years beginning in: percentage is:
1987 75
1988 50
1989 25.
--------------------------------------------------------------------
"(C) Qualified controlled foreign insurer. - For purposes of
this paragraph, the term 'qualified controlled foreign insurer'
means -
"(i) any controlled foreign corporation which on August 16,
1986, was a member of an affiliated group (as defined in
section 1504(a) of the Internal Revenue Code of 1986 without
regard to subsection (b)(3) thereof) which had as its common
parent a corporation incorporated in Delaware on June 9, 1967,
with executive offices in New York, New York, or
"(ii) any controlled foreign corporation which on August 16,
1986, was a member of an affiliated group (as so defined) which
had as its common parent a corporation incorporated in Delaware
on November 3, 1981, with executive offices in Philadelphia,
Pennsylvania.
"(D) Qualified reinsurance income. - For purposes of this
paragraph, the term 'qualified reinsurance income' means any
insurance income attributable to risks (other than risks
described in section 953(a) or 954(e) of such Code as in effect
on the day before the date of the enactment of this Act [Oct. 22,
1986]) assumed under a reinsurance contract. For purposes of this
subparagraph, insurance income shall mean the underwriting income
(as defined in section 832(b)(3) of such Code) and investment
income derived from an amount of assets (to be segregated and
separately identified) equivalent to the ordinary and necessary
insurance reserves and necessary surplus equal to 1/3 of earned
premium attributable to such contracts. For purposes of this
paragraph, the amount of qualified reinsurance income shall not
exceed the amount of insurance income from reinsurance contracts
for calendar year 1985. In the case of controlled foreign
corporations described in subparagraph (C)(ii), the preceding
sentence shall not apply and the qualified reinsurance income of
any such corporation shall not exceed such corporation's
proportionate share of $27,000,000 (determined on the basis of
respective amounts of qualified reinsurance income determined
without regard to this subparagraph)."
Amendment by section 1223(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1223(c) of
Pub. L. 99-514, set out as a note under section 864 of this title.
Amendment by section 1810(k) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 137(b) of Pub. L. 98-369 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years of controlled foreign corporations beginning after
the date of the enactment of this Act [July 18, 1984]."
Amendment by section 712(f) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 212(f) of Pub. L. 97-248 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years of foreign corporations beginning after December 31, 1982,
and to taxable years of United States shareholders in which, or
with which, such taxable years of foreign corporations end."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1023(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by this section [amending this section] shall apply
to taxable years of foreign corporations beginning after December
31, 1975, and to taxable years of United States shareholders
(within the meaning of section 951(b) of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954]) within which or with which such
taxable years of such foreign corporations end."
Section 1024(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by this section [amending this section] shall apply
to taxable years of foreign corporations beginning after December
31, 1975, and to taxable years of United States shareholders
(within the meaning of section 951(b) of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954]) within which or with which such
taxable years of such foreign corporations end."
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 applicable to taxable years of foreign
corporations beginning after Dec. 31, 1975, and to taxable years of
United States shareholders (within the meaning of section 951(b) of
this title) within which or with which such taxable years of such
foreign corporations end, see section 602(f) of Pub. L. 94-12, set
out as an Effective Date note under section 955 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 909(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years ending after October 9, 1969."
LINE ITEM VETO
Section 1175 of Pub. L. 105-34, amending this section and
enacting provisions set out as a note above, was subject to line
item veto by the President, Cancellation No. 97-1, signed Aug. 11,
1997, 62 F.R. 43266, Aug. 12, 1997. For decision holding line item
veto unconstitutional, see Clinton v. City of New York, 524 U.S.
417, 118 S.Ct. 2091, 141 L.Ed.2d 393 (1998).
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 1201(c) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
SPECIAL RULE FOR APPLICATION OF SECTION 954 TO CERTAIN DIVIDENDS
Section 1227 of Pub. L. 99-514 provided that:
"(a) In General. - For purposes of section 954(c)(3)(A) of the
Internal Revenue Code of 1986, any dividends received by a
qualified controlled foreign corporation (within the meaning of
section 951 of such Code) during any of its 1st 5 taxable years
beginning after December 31, 1986, with respect to its 32.7 percent
interest in a Brazilian corporation shall be treated as if such
Brazilian corporation were a related person to the qualified
controlled foreign corporation to the extent the Brazilian
corporation's income is attributable to its interest in the trade
or business of mining in Brazil.
"(b) Qualified Controlled Foreign Corporation. - For purposes of
this section, a qualified controlled foreign corporation is a
corporation the greater than 99 percent shareholder of which is a
company originally incorporated in Montana on July 9, 1951 (the
name of which was changed on August 10, 1966).
"(c) Effective Date. - The amendment made by this section shall
apply to dividends received after December 31, 1986."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 552, 861, 864, 881, 904,
936, 952, 953, 955, 958, 964, 970, 971, 988, 1042, 1296, 1297,
1298, 2057 of this title.
-FOOTNOTE-
(!1) So in original.
(!2) So in original. The comma probably should not appear.
(!3) So in original.
-End-
-CITE-
26 USC Sec. 955 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 955. Withdrawal of previously excluded subpart F income from
qualified investment
-STATUTE-
(a) General rules
(1) Amount withdrawn
For purposes of this subpart, the amount of previously excluded
subpart F income of any controlled foreign corporation withdrawn
from investment in foreign base company shipping operations for
any taxable year is an amount equal to the decrease in the amount
of qualified investments in foreign base company shipping
operations of the controlled foreign corporation for such year,
but only to the extent that the amount of such decrease does not
exceed an amount equal to -
(A) the sum of the amounts excluded under section 954(b)(2)
from the foreign base company income of such corporation for
all prior taxable years beginning before 1987, reduced by
(B) the sum of the amounts of previously excluded subpart F
income withdrawn from investment in foreign base company
shipping operations of such corporation determined under this
subsection for all prior taxable years.
(2) Decrease in qualified investments
For purposes of paragraph (1), the amount of the decrease in
qualified investments in foreign base company shipping operations
of any controlled foreign corporation for any taxable year is the
amount by which -
(A) the amount of qualified investments in foreign base
company shipping operations of the controlled foreign
corporation as of the close of the last taxable year beginning
before 1987 (to the extent such amount exceeds the sum of the
decreases in qualified investments determined under this
paragraph for prior taxable years beginning after 1986),
exceeds
(B) the amount of qualified investments in foreign base
company shipping operations of the controlled foreign
corporation at the close of the taxable year,
to the extent that the amount of such decrease does not exceed
the sum of the earnings and profits for the taxable year and the
earnings and profits accumulated for prior taxable years
beginning after December 31, 1975, and the amount of previously
excluded subpart F income invested in less developed country
corporations described in section 955(c)(2) (as in effect before
the enactment of the Tax Reduction Act of 1975) to the extent
attributable to earnings and profits accumulated for taxable
years beginning after December 31, 1962. For purposes of this
paragraph, if qualified investments in foreign base company
shipping operations are disposed of by the controlled foreign
corporation during the taxable year, the amount of the decrease
in qualified investments in foreign base company shipping
operations of such controlled foreign corporations for such year
shall be reduced by an amount equal to the amount (if any) by
which the losses on such dispositions during such year exceed the
gains on such dispositions during such year.
(3) Pro rata share of amount withdrawn
In the case of any United States shareholder, the pro rata
share of the amount of previously excluded subpart F income of
any controlled foreign corporation withdrawn from investment in
foreign base company shipping operations for any taxable year is
his pro rata share of the amount determined under paragraph (1).
(b) Qualified investments in foreign base company shipping
operations
(1) In general
For purposes of this subpart, the term "qualified investments
in foreign base company shipping operations" means investments in
-
(A) any aircraft or vessel used in foreign commerce, and
(B) other assets which are used in connection with the
performance of services directly related to the use of any such
aircraft or vessel.
Such term includes, but is not limited to, investments by a
controlled foreign corporation in stock or obligations of another
controlled foreign corporation which is a related person (within
the meaning of section 954(d)(3)) and which holds assets
described in the preceding sentence, but only to the extent that
such assets are so used.
(2) Qualified investments by related persons
For purposes of determining the amount of qualified investments
in foreign based company shipping operations, an investment (or a
decrease in investment) in such operations by one or more
controlled foreign corporations may, under regulations prescribed
by the Secretary, be treated as an investment (or a decrease in
investment) by another corporation which is a controlled foreign
corporation and is a related person (as defined in section
954(d)(3) with respect to the corporation actually making or
withdrawing the investment.
(3) Special rule
For purposes of this subpart, a United States shareholder of a
controlled foreign corporation may, under regulations prescribed
by the Secretary, elect to make the determinations under
subsection (a)(2) of this section and under subsection (g) of
section 954 as of the close of the years following the years
referred to in such subsections, or as of the close of such
longer period of time as such regulations may permit, in lieu of
on the last day of such years. Any election under this paragraph
made with respect to any taxable year shall apply to such year
and to all succeeding taxable years unless the Secretary consents
to the revocation of such election.
(4) Amount attributable to property
The amount taken into account under this subpart with respect
to any property described in paragraph (1) shall be its adjusted
basis, reduced by any liability to which such property is
subject.
(5) Income excluded under prior law
Amounts invested in less developed country corporations
described in section 955(c)(2) (as in effect before the enactment
of the Tax Reduction Act of 1975) shall be treated as qualified
investments in foreign base company shipping operations and shall
not be treated as investments in less developed countries for
purposes of section 951(a)(1)(A)(ii).
-SOURCE-
(Added Pub. L. 94-12, title VI, Sec. 602(d)(3)(A), Mar. 29, 1975,
89 Stat. 62; amended Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99-514, title
XII, Sec. 1221(c)(3)(B), (C), Oct. 22, 1986, 100 Stat. 2553; Pub.
L. 100-647, title I, Sec. 1012(i)(11), Nov. 10, 1988, 102 Stat.
3509.)
-REFTEXT-
REFERENCES IN TEXT
Section 955(c)(2) (as in effect before the enactment of the Tax
Reduction Act of 1975), referred to in subsecs. (a)(2) and (b)(5),
refers to section 955(c)(2) as added by Pub. L. 87-834, Sec. 12(a),
Oct. 16, 1962, 76 Stat. 1013, and as in effect from 1962 until the
repeal of that section and the enactment of this section by Pub. L.
94-12.
The Tax Reduction Act of 1975, referred to in subsecs. (a)(2) and
(b)(5), is Pub. L. 94-12, Mar. 29, 1975, 89 Stat. 26, as amended,
which was enacted Mar. 29, 1975. For complete classification of
this Act to the Code, see Short Title of 1975 Amendment note set
out under section 1 of this title and Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 955, added Pub. L. 87-834, Sec. 12(a), Oct. 16,
1962, 76 Stat. 1013, related to investments in less developed
countries and dealing with less developed country corporations,
prior to repeal by Pub. L. 94-12, title VI, Sec. 602(c)(5), Mar.
29, 1975, 89 Stat. 59.
AMENDMENTS
1988 - Subsec. (a)(2)(A). Pub. L. 100-647 inserted "(to the
extent such amount exceeds the sum of the decreases in qualified
investments determined under this paragraph for prior taxable years
beginning after 1986)" after "beginning before 1987".
1986 - Subsec. (a)(1)(A). Pub. L. 99-514, Sec. 1221(c)(3)(B),
inserted "beginning before 1987" after "all prior taxable years".
Subsec. (a)(2)(A). Pub. L. 99-514, Sec. 1221(c)(3)(C),
substituted "as of the close of the last taxable year beginning
before 1987" for "at the close of the preceding taxable year".
1976 - Subsec. (b)(2), (3). Pub. L. 94-455 struck out "or his
delegate" after "Secretary" wherever appearing.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1986, except as
otherwise provided, see section 1221(g) of Pub. L. 99-514, set out
as a note under section 954 of this title.
EFFECTIVE DATE
Section 602(f) of Pub. L. 94-12, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [enacting this section, amending
sections 851, 902, 951, and 954 of this title, and repealing
section 963 and former section 955 of this title] shall apply to
taxable years of foreign corporations beginning after December 31,
1975, and to taxable years of United States shareholders (within
the meaning of 951(b) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]) within which or with which such taxable
years of such foreign corporations end."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 902, 951, 964, 970 of
this title.
-End-
-CITE-
26 USC Sec. 956 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 956. Investment of earnings in United States property
-STATUTE-
(a) General rule
In the case of any controlled foreign corporation, the amount
determined under this section with respect to any United States
shareholder for any taxable year is the lesser of -
(1) the excess (if any) of -
(A) such shareholder's pro rata share of the average of the
amounts of United States property held (directly or indirectly)
by the controlled foreign corporation as of the close of each
quarter of such taxable year, over
(B) the amount of earnings and profits described in section
959(c)(1)(A) with respect to such shareholder, or
(2) such shareholder's pro rata share of the applicable
earnings of such controlled foreign corporation.
The amount taken into account under paragraph (1) with respect to
any property shall be its adjusted basis as determined for purposes
of computing earnings and profits, reduced by any liability to
which the property is subject.
(b) Special rules
(1) Applicable earnings
For purposes of this section, the term "applicable earnings"
means, with respect to any controlled foreign corporation, the
sum of -
(A) the amount (not including a deficit) referred to in
section 316(a)(1) to the extent such amount was accumulated in
prior taxable years, and
(B) the amount referred to in section 316(a)(2),
but reduced by distributions made during the taxable year and by
earnings and profits described in section 959(c)(1).
(2) Special rule for U.S. property acquired before corporation is
a controlled foreign corporation
In applying subsection (a) to any taxable year, there shall be
disregarded any item of United States property which was acquired
by the controlled foreign corporation before the first day on
which such corporation was treated as a controlled foreign
corporation. The aggregate amount of property disregarded under
the preceding sentence shall not exceed the portion of the
applicable earnings of such controlled foreign corporation which
were accumulated during periods before such first day.
(3) Special rule where corporation ceases to be controlled
foreign corporation
If any foreign corporation ceases to be a controlled foreign
corporation during any taxable year -
(A) the determination of any United States shareholder's pro
rata share shall be made on the basis of stock owned (within
the meaning of section 958(a)) by such shareholder on the last
day during the taxable year on which the foreign corporation is
a controlled foreign corporation,
(B) the average referred to in subsection (a)(1)(A) for such
taxable year shall be determined by only taking into account
quarters ending on or before such last day, and
(C) in determining applicable earnings, the amount taken into
account by reason of being described in paragraph (2) of
section 316(a) shall be the portion of the amount so described
which is allocable (on a pro rata basis) to the part of such
year during which the corporation is a controlled foreign
corporation.
(c) United States property defined
(1) In general
For purposes of subsection (a), the term "United States
property" means any property acquired after December 31, 1962,
which is -
(A) tangible property located in the United States;
(B) stock of a domestic corporation;
(C) an obligation of a United States person; or
(D) any right to the use in the United States of -
(i) a patent or copyright,
(ii) an invention, model, or design (whether or not
patented),
(iii) a secret formula or process, or
(iv) any other similar right,
which is acquired or developed by the controlled foreign
corporation for use in the United States.
(2) Exceptions
For purposes of subsection (a), the term "United States
property" does not include -
(A) obligations of the United States, money, or deposits with
persons carrying on the banking business;
(B) property located in the United States which is purchased
in the United States for export to, or use in, foreign
countries;
(C) any obligation of a United States person arising in
connection with the sale or processing of property if the
amount of such obligation outstanding at no time during the
taxable year exceeds the amount which would be ordinary and
necessary to carry on the trade or business of both the other
party to the sale or processing transaction and the United
States person had the sale or processing transaction been made
between unrelated persons;
(D) any aircraft, railroad rolling stock, vessel, motor
vehicle, or container used in the transportation of persons or
property in foreign commerce and used predominantly outside the
United States;
(E) an amount of assets of an insurance company equivalent to
the unearned premiums or reserves ordinary and necessary for
the proper conduct of its insurance business attributable to
contracts which are not contracts described in section
953(a)(1); (!1)
(F) the stock or obligations of a domestic corporation which
is neither a United States shareholder (as defined in section
951(b)) of the controlled foreign corporation, nor a domestic
corporation, 25 percent or more of the total combined voting
power of which, immediately after the acquisition of any stock
in such domestic corporation by the controlled foreign
corporation, is owned, or is considered as being owned, by such
United States shareholders in the aggregate;
(G) any movable property (other than a vessel or aircraft)
which is used for the purpose of exploring for, developing,
removing, or transporting resources from ocean waters or under
such waters when used on the Continental Shelf of the United
States;
(H) an amount of assets of the controlled foreign corporation
equal to the earnings and profits accumulated after December
31, 1962, and excluded from subpart F income under section
952(b);
(I) to the extent provided in regulations prescribed by the
Secretary, property which is otherwise United States property
which is held by a FSC and which is related to the export
activities of such FSC;
(J) deposits of cash or securities made or received on
commercial terms in the ordinary course of a United States or
foreign person's business as a dealer in securities or in
commodities, but only to the extent such deposits are made or
received as collateral or margin for (i) a securities loan,
notional principal contract, options contract, forward
contract, or futures contract, or (ii) any other financial
transaction in which the Secretary determines that it is
customary to post collateral or margin; and
(K) an obligation of a United States person to the extent the
principal amount of the obligation does not exceed the fair
market value of readily marketable securities sold or purchased
pursuant to a sale and repurchase agreement or otherwise posted
or received as collateral for the obligation in the ordinary
course of its business by a United States or foreign person
which is a dealer in securities or commodities.
For purposes of subparagraphs (J) and (K), the term "dealer in
securities" has the meaning given such term by section 475(c)(1),
and the term "dealer in commodities" has the meaning given such
term by section 475(e), except that such term shall include a
futures commission merchant.
(3) Certain trade or service receivables acquired from related
United States persons
(A) In general
Notwithstanding paragraph (2) (other than subparagraph (H)
thereof), the term "United States property" includes any trade
or service receivable if -
(i) such trade or service receivable is acquired (directly
or indirectly) from a related person who is a United States
person, and
(ii) the obligor under such receivable is a United States
person.
(B) Definitions
For purposes of this paragraph, the term "trade or service
receivable" and "related person" have the respective meanings
given to such terms by section 864(d).
(d) Pledges and guarantees
For purposes of subsection (a), a controlled foreign corporation
shall, under regulations prescribed by the Secretary, be considered
as holding an obligation of a United States person if such
controlled foreign corporation is a pledgor or guarantor of such
obligations.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section, including
regulations to prevent the avoidance of the provisons (!2) of this
section through reorganizations or otherwise.
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1015;
amended Pub. L. 94-455, title X, Sec. 1021(a), title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1618, 1834; Pub. L. 98-369,
div. A, title I, Sec. 123(b), title VIII, Sec. 801(d)(8), July 18,
1984, 98 Stat. 646, 996; Pub. L. 99-514, title XVIII, Sec.
1810(c)(1), Oct. 22, 1986, 100 Stat. 2824; Pub. L. 103-66, title
XIII, Sec. 13232(a), (b), Aug. 10, 1993, 107 Stat. 501; Pub. L.
104-188, title I, Sec. 1501(b)(2), (3), Aug. 20, 1996, 110 Stat.
1825; Pub. L. 105-34, title XI, Sec. 1173(a), title XVI, Sec.
1601(e), Aug. 5, 1997, 111 Stat. 988, 1090.)
-REFTEXT-
REFERENCES IN TEXT
Section 953(a)(1), referred to in subsec. (c)(2)(E), was
subsequently amended, and section 953(a)(1) no longer describes
contracts. However, contracts are described elsewhere in that
section.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(1)(A). Pub. L. 105-34, Sec. 1601(e), inserted
"to the extent such amount was accumulated in prior taxable years"
after "section 316(a)(1)".
Subsec. (c)(2). Pub. L. 105-34, Sec. 1173(a), added subpars. (J)
and (K) and concluding provisions.
1996 - Subsec. (b)(1). Pub. L. 104-188, Sec. 1501(b)(2),
reenacted heading without change and amended text generally. Prior
to amendment, text read as follows: "For purposes of this section,
the term 'applicable earnings' has the meaning given to such term
by section 956A(b), except that the provisions of such section
excluding earnings and profits accumulated in taxable years
beginning before October 1, 1993, shall be disregarded."
Subsec. (b)(3). Pub. L. 104-188, Sec. 1501(b)(3), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "Rules similar to the rules of
section 956A(e) shall apply for purposes of this section."
1993 - Subsec. (a). Pub. L. 103-66, Sec. 13232(a)(2), added
subsec. (a) and struck out former subsec. (a) which consisted of
introductory provisions and pars. (1) to (3) setting out general
rules for calculating amount of earnings of a controlled foreign
corporation invested in United States and pro rata share of the
increase for any taxable year in earnings of such a corporation
invested in United States property.
Subsecs. (b) to (d). Pub. L. 103-66, Sec. 13232(a), added subsec.
(b) and redesignated former subsecs. (b) and (c) as (c) and (d),
respectively.
Subsec. (e). Pub. L. 103-66, Sec. 13232(b), added subsec. (e).
1986 - Subsec. (b)(3)(A). Pub. L. 99-514 inserted "(other than
subparagraph (H) thereof)".
1984 - Subsec. (b)(2)(I). Pub. L. 98-369, Sec. 801(d)(8), added
subpar. (I).
Subsec. (b)(3). Pub. L. 98-369, Sec. 123(b), added par. (3).
1976 - Subsec. (b)(2)(F) to (H). Pub. L. 94-455, Sec. 1021(a),
added subpars. (F) and (G) and redesignated former subpar. (F) as
(H).
Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1173(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years of foreign corporations beginning after December 31, 1997,
and to taxable years of United States shareholders with or within
which such taxable years of foreign corporations end."
Amendment by section 1601(e) of Pub. L. 105-34 effective as if
included in the provisions of the Small Business Job Protection Act
of 1996, Pub. L. 104-188, to which it relates, see section 1601(j)
of Pub. L. 105-34, set out as a note under section 23 of this
title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1996, and to taxable
years of United States shareholders within which or with which such
taxable years of foreign corporations end, see section 1501(d) of
Pub. L. 104-188, set out as a note under section 904 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years of
controlled foreign corporations beginning after Sept. 30, 1993, and
to taxable years of United States shareholders in which or with
which such taxable years of controlled foreign corporations end,
see section 13232(d) of Pub. L. 103-66, set out as a note under
section 951 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 123(b) of Pub. L. 98-369 applicable to
accounts receivable and evidences of indebtedness transferred after
Mar. 1, 1984, in taxable years ending after such date, with an
exception, see section 123(c) of Pub. L. 98-369, set out as a note
under section 864 of this title.
Amendment by section 801(d)(8) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1021(c) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and section
958 of this title] shall apply to taxable years of foreign
corporations beginning after December 31, 1975, and to taxable
years of United States shareholders (within the meaning of section
951(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954])
within which or with which such taxable years of such foreign
corporations end. In determining for purposes of any taxable year
referred to in the preceding sentence the amount referred to in
section 956(a)(2)(A) of the Internal Revenue Code of 1986 for the
last taxable year of a corporation beginning before January 1,
1976, the amendments made by this section shall be deemed also to
apply to such last taxable year."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 864, 902, 951, 954, 955,
958, 964, 4916 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
(!2) So in original. Probably should be "provisions".
-End-
-CITE-
26 USC Sec. 956A 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
[Sec. 956A. Repealed. Pub. L. 104-188, title I, Sec. 1501(a)(2),
Aug. 20, 1996, 110 Stat. 1825]
-MISC1-
Section, added Pub. L. 103-66, title XIII, Sec. 13231(b), Aug.
10, 1993, 107 Stat. 496; amended Pub. L. 104-188, title I, Sec.
1703(i)(2), (3), Aug. 20, 1996, 110 Stat. 1876, related to earnings
invested in excess passive assets.
EFFECTIVE DATE OF REPEAL
Repeal by Pub. L. 104-188 applicable to taxable years of foreign
corporations beginning after Dec. 31, 1996, and to taxable years of
United States shareholders within which or with which such taxable
years of foreign corporations end, see section 1501(d) of Pub. L.
104-188, set out as an Effective Date of 1996 Amendment note under
section 904 of this title.
-End-
-CITE-
26 USC Sec. 957 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 957. Controlled foreign corporations; United States persons
-STATUTE-
(a) General rule
For purposes of this subpart, the term "controlled foreign
corporation" means any foreign corporation if more than 50 percent
of -
(1) the total combined voting power of all classes of stock of
such corporation entitled to vote, or
(2) the total value of the stock of such corporation,
is owned (within the meaning of section 958(a)), or is considered
as owned by applying the rules of ownership of section 958(b), by
United States shareholders on any day during the taxable year of
such foreign corporation.
(b) Special rule for insurance
For purposes only of taking into account income described in
section 953(a) (relating to insurance income), the term "controlled
foreign corporation" includes not only a foreign corporation as
defined by subsection (a) but also one of which more than 25
percent of the total combined voting power of all classes of stock
(or more than 25 percent of the total value of stock) is owned
(within the meaning of section 958(a)), or is considered as owned
by applying the rules of ownership of section 958(b), by United
States shareholders on any day during the taxable year of such
corporation, if the gross amount of premiums or other consideration
in respect of the reinsurance or the issuing of insurance or
annuity contracts described in section 953(a)(1) (!1) exceeds 75
percent of the gross amount of all premiums or other consideration
in respect of all risks.
(c) United States person
For purposes of this subpart, the term "United States person" has
the meaning assigned to it by section 7701(a)(30) except that -
(1) with respect to a corporation organized under the laws of
the Commonwealth of Puerto Rico, such term does not include an
individual who is a bona fide resident of Puerto Rico, if a
dividend received by such individual during the taxable year from
such corporation would, for purposes of section 933(1), be
treated as income derived from sources within Puerto Rico, and
(2) with respect to a corporation organized under the laws of
Guam, American Samoa, or the Northern Mariana Islands -
(A) 80 percent or more of the gross income of which for the
3-year period ending at the close of the taxable year (or for
such part of such period as such corporation or any predecessor
has been in existence) was derived from sources within such a
possession or was effectively connected with the conduct of a
trade or business in such a possession, and
(B) 50 percent or more of the gross income of which for such
period (or part) was derived from the conduct of an active
trade or business within such a possession,
such term does not include an individual who is a bona fide
resident of Guam, American Samoa, or the Northern Mariana
Islands.
For purposes of subparagraphs (A) and (B) of paragraph (2), the
determination as to whether income was derived from sources within
a possession, was effectively connected with the conduct of a trade
or business within a possession, or derived from the active conduct
of a trade or business within a possession shall be made under
regulations prescribed by the Secretary.
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1017;
amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1834; Pub. L. 99-514, title XII, Secs.
1221(b)(3)(C), 1222(a), 1224(a), 1273(a), Oct. 22, 1986, 100 Stat.
2553, 2556, 2558, 2595.)
-REFTEXT-
REFERENCES IN TEXT
Section 953(a)(1), referred to in subsec. (b), was subsequently
amended, and section 953(a)(1) no longer describes insurance or
annuity contracts. However, insurance or annuity contracts are
described elsewhere in that section.
-MISC1-
AMENDMENTS
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1222(a)(1), amended
subsec. (a) generally. Prior to amendment, subsec. (a) read as
follows: "For purposes of this subpart, the term 'controlled
foreign corporation' means any foreign corporation of which more
than 50 percent of the total combined voting power of all classes
of stock entitled to vote is owned (within the meaning of section
958(a)), or is considered as owned by applying the rules of
ownership of section 958(b), by United States shareholders on any
day during the taxable year of such foreign corporation."
Subsec. (b). Pub. L. 99-514, Sec. 1222(a)(2), inserted "(or more
than 25 percent of the total value of stock)".
Pub. L. 99-514, Sec. 1221(b)(3)(C), substituted "insurance
income" for "income derived from insurance of United States risks".
Subsec. (c). Pub. L. 99-514, Sec. 1273(a), added par. (2) and
concluding provisions and struck out former pars. (2) and (3) which
read as follows:
"(2) with respect to a corporation organized under the laws of
the Virgin Islands, such term does not include an individual who is
a bona fide resident of the Virgin Islands and whose income tax
obligation under this subtitle for the taxable year is satisfied
pursuant to section 28(a) of the Revised Organic Act of the Virgin
Islands, approved July 22, 1954 (48 U.S.C. 1642), by paying tax on
income derived from all sources both within and outside the Virgin
Islands into the treasury of the Virgin Islands, and
"(3) with respect to a corporation organized under the laws of
any other possession of the United States, such term does not
include an individual who is a bona fide resident of any such other
possession and whose income derived from sources within possessions
of the United States is not, by reason of section 931(a),
includible in gross income under this subtitle for the taxable
year."
Pub. L. 99-514, Sec. 1224(a), redesignated subsec. (d) as (c) and
struck out former subsec. (c) which provided circumstances under
which for purposes of this subpart, the term "controlled foreign
corporation" would not include certain corporations created or
organized in Puerto Rico or a possession of the United States or
under the laws of Puerto Rico or a possession of the United States.
Subsec. (d). Pub. L. 99-514, Sec. 1224(a), redesignated subsec.
(d) as (c).
1976 - Subsec. (c) Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1221(b)(3)(C) of Pub. L. 99-514 applicable
to taxable years of foreign corporations beginning after Dec. 31,
1986, except as otherwise provided, see section 1221(g) of Pub. L.
99-514, set out as a note under section 954 of this title.
Amendment by section 1222(a) of Pub. L. 99-514 applicable to
taxable years of foreign corporations beginning after Dec. 31,
1986, except that for purposes of applying sections 951(a)(1)(B)
and 956 of this title, amendment effective Aug. 16, 1986, with
transitional rule and special rule for beneficiary of trust, see
section 1222(c) of Pub. L. 99-514, set out as a note under section
552 of this title.
Section 1224(b) of Pub. L. 99-514 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to taxable years of foreign corporations
beginning after December 31, 1986; except that for purposes of
applying sections 951(a)(1)(B) and 956 of the Internal Revenue Code
of 1986, such amendments shall take effect on August 16, 1986.
"(2) Transitional rule. - In the case of any corporation treated
as a controlled foreign corporation by reason of the amendment made
by subsection (a), property acquired before August 16, 1986, shall
not be taken into account under section 956(b) of the Internal
Revenue Code of 1986."
Amendment by section 1273(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 312, 672, 679, 864, 877,
881, 883, 901, 902, 904, 936, 951, 953, 958, 970, 971, 1248, 1291,
1293, 1298 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 958 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 958. Rules for determining stock ownership
-STATUTE-
(a) Direct and indirect ownership
(1) General rule
For purposes of this subpart (other than section 960(a)(1)),
stock owned means -
(A) stock owned directly, and
(B) stock owned with the application of paragraph (2).
(2) Stock ownership through foreign entities
For purposes of subparagraph (B) of paragraph (1), stock owned,
directly or indirectly, by or for a foreign corporation, foreign
partnership, or foreign trust or foreign estate (within the
meaning of section 7701(a)(31)) shall be considered as being
owned proportionately by its shareholders, partners, or
beneficiaries. Stock considered to be owned by a person by reason
of the application of the preceding sentence shall, for purposes
of applying such sentence, be treated as actually owned by such
person.
(3) Special rule for mutual insurance companies
For purposes of applying paragraph (1) in the case of a foreign
mutual insurance company, the term "stock" shall include any
certificate entitling the holder to voting power in the
corporation.
(b) Constructive ownership
For purposes of sections 951(b), 954(d)(3), 956(c)(2), and 957,
section 318(a) (relating to constructive ownership of stock) shall
apply to the extent that the effect is to treat any United States
person as a United States shareholder within the meaning of section
951(b), to treat a person as a related person within the meaning of
section 954(d)(3), to treat the stock of a domestic corporation as
owned by a United States shareholder of the controlled foreign
corporation for purposes of section 956(c)(2), or to treat a
foreign corporation as a controlled foreign corporation under
section 957, except that -
(1) In applying paragraph (1)(A) of section 318(a), stock owned
by a nonresident alien individual (other than a foreign trust or
foreign estate) shall not be considered as owned by a citizen or
by a resident alien individual.
(2) In applying subparagraphs (A), (B), and (C) of section
318(a)(2), if a partnership, estate, trust, or corporation owns,
directly or indirectly, more than 50 percent of the total
combined voting power of all classes of stock entitled to vote of
a corporation, it shall be considered as owning all the stock
entitled to vote.
(3) In applying subparagraph (C) of section 318(a)(2), the
phrase "10 percent" shall be substituted for the phrase "50
percent" used in subparagraph (C).
(4) Subparagraph (A), (B), and (C) of section 318(a)(3) shall
not be applied so as to consider a United States person as owning
stock which is owned by a person who is not a United States
person.
Paragraphs (1) and (4) shall not apply for purposes of section
956(c)(2) to treat stock of a domestic corporation as not owned by
a United States shareholder.
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1018;
amended Pub. L. 88-554, Sec. 4(b)(5), Aug. 31, 1964, 78 Stat. 763;
Pub. L. 94-455, title X, Sec. 1021(b), Oct. 4, 1976, 90 Stat. 1619;
Pub. L. 104-188, title I, Secs. 1703(i)(4), 1704(t)(7), Aug. 20,
1996, 110 Stat. 1876, 1887.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(1). Pub. L. 104-188, Sec. 1704(t)(7),
substituted "section 960(a)(1)" for "sections 955(b)(1)(A) and (B),
955(c)(2)(A)(ii), and 960(a)(1)" in introductory provisions.
Subsec. (b). Pub. L. 104-188, Sec. 1703(i)(4), substituted
"956(c)(2)" for "956(b)(2)" wherever appearing in introductory and
closing provisions.
1976 - Subsec. (b). Pub. L. 94-455 inserted "956(b)(2)" after
"purposes of sections 951(b), 954(d)(3),", "to treat the stock of a
domestic corporation as owned by a United States shareholder of the
controlled foreign corporation for purposes of section 956(b)(2)"
after "meaning of section 954(d)(3)" and "Paragraphs (1) and (4)
shall not apply for purposes of section 956(b)(2) to treat stock of
a domestic corporation as not owned by a United States shareholder"
following subpar. (4).
1964 - Subsec. (b). Pub. L. 88-554 redesignated pars. (4) and (5)
as (3) and (4), respectively, struck out former par. (3) which
related to ownership of stock by a partnership, estate, trust, or
corporation for purposes of applying first sentence of subpars. (A)
and (B), and subpar. (C)(i) of section 318(a)(2) of this title, and
made amendments throughout subsec. (b) to conform to changes made
in section 318 of this title by Pub. L. 88-554.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1703(i)(4) of Pub. L. 104-188 effective as
if included in the provision of the Revenue Reconciliation Act of
1993, Pub. L. 103-66, Secs. 13001-13444, to which such amendment
relates, see section 1703(o) of Pub. L. 104-188, set out as a note
under section 39 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1975, and to taxable
years of United States shareholders within which or with which such
taxable years of such corporations end, see section 1021(c) of Pub.
L. 94-455, set out as a note under section 956 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that
for purposes of sections 302 and 304 of this title, such amendments
shall not apply to distributions in payment for stock acquisitions
or redemptions, if such acquisitions or redemptions occurred before
Aug. 31, 1964, see section 4(c) of Pub. L. 88-554, set out as a
note under section 318 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 296B, 304, 318, 545, 864,
877, 898, 904, 934, 951, 953, 954, 956, 957, 959, 961, 964, 1246,
1248, 1249, 1297, 2107, 6655 of this title.
-End-
-CITE-
26 USC Sec. 959 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 959. Exclusion from gross income of previously taxed earnings
and profits
-STATUTE-
(a) Exclusion from gross income of United States persons
For purposes of this chapter, the earnings and profits of a
foreign corporation attributable to amounts which are, or have
been, included in the gross income of a United States shareholder
under section 951(a) shall not, when -
(1) such amounts are distributed to, or
(2) such amounts would, but for this subsection, be included
under section 951(a)(1)(B) in the gross income of,
such shareholder (or any other United States person who acquires
from any person any portion of the interest of such United States
shareholder in such foreign corporation, but only to the extent of
such portion, and subject to such proof of the identity of such
interest as the Secretary may by regulations prescribe) directly or
indirectly through a chain of ownership described under section
958(a), be again included in the gross income of such United States
shareholder (or of such other United States person). The rules of
subsection (c) shall apply for purposes of paragraph (1) of this
subsection and the rules of subsection (f) shall apply for purposes
of paragraph (2) of this subsection.
(b) Exclusion from gross income of certain foreign subsidiaries
For purposes of section 951(a), the earnings and profits of a
controlled foreign corporation attributable to amounts which are,
or have been, included in the gross income of a United States
shareholder under section 951(a), shall not, when distributed
through a chain of ownership described under section 958(a), be
also included in the gross income of another controlled foreign
corporation in such chain for purposes of the application of
section 951(a) to such other controlled foreign corporation with
respect to such United States shareholder (or to any other United
States shareholder who acquires from any person any portion of the
interest of such United States shareholder in the controlled
foreign corporation, but only to the extent of such portion, and
subject to such proof of identity of such interest as the Secretary
may prescribe by regulations).
(c) Allocation of distributions
For purposes of subsections (a) and (b), section 316(a) shall be
applied by applying paragraph (2) thereof, and then paragraph (1)
thereof -
(1) first to the aggregate of -
(A) earnings and profits attributable to amounts included in
gross income under section 951(a)(1)(B) (or which would have
been included except for subsection (a)(2) of this section),
and
(B) earnings and profits attributable to amounts included in
gross income under section 951(a)(1)(C) (or which would have
been included except for subsection (a)(3) of this section),
with any distribution being allocated between earnings and
profits described in subparagraph (A) and earnings and profits
described in subparagraph (B) proportionately on the basis of the
respective amounts of such earnings and profits,
(2) then to earnings and profits attributable to amounts
included in gross income under section 951(a)(1)(A) (but reduced
by amounts not included under subparagraph (B) or (C) of section
951(a)(1) because of the exclusions in paragraphs (2) and (3) of
subsection (a) of this section), and
(3) then to other earnings and profits.
References in this subsection to section 951(a)(1)(C) and
subsection (a)(3) shall be treated as references to such provisions
as in effect on the day before the date of the enactment of the
Small Business Job Protection Act of 1996.
(d) Distributions excluded from gross income not to be treated as
dividends
Except as provided in section 960(a)(3), any distribution
excluded from gross income under subsection (a) shall be treated,
for purposes of this chapter, as a distribution which is not a
dividend; except that such distributions shall immediately reduce
earnings and profits.
(e) Coordination with amounts previously taxed under section 1248
For purposes of this section and section 960(b), any amount
included in the gross income of any person as a dividend by reason
of subsection (a) or (f) of section 1248 shall be treated as an
amount included in the gross income of such person (or, in any case
to which section 1248(e) applies, of the domestic corporation
referred to in section 1248(e)(2)) under section 951(a)(1)(A).
(f) Allocation rules for certain inclusions
(1) In general
For purposes of this section, amounts that would be included
under subparagraph (B) of section 951(a)(1) (determined without
regard to this section) shall be treated as attributable first to
earnings described in subsection (c)(2), and then to earnings
described in subsection (c)(3).
(2) Treatment of distributions
In applying this section, actual distributions shall be taken
into account before amounts that would be included under section
951(a)(1)(B) (determined without regard to this section).
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1019;
amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1834; Pub. L. 98-369, div. A, title I, Sec.
133(b)(1), July 18, 1984, 98 Stat. 668; Pub. L. 99-514, title XII,
Sec. 1226(b), Oct. 22, 1986, 100 Stat. 2560; Pub. L. 100-647, title
I, Sec. 1012(bb)(7)(A), Nov. 10, 1988, 102 Stat. 3536; Pub. L.
103-66, title XIII, Sec. 13231(c)(1), (2), (4)(A), (B), Aug. 10,
1993, 107 Stat. 497, 498; Pub. L. 104-188, title I, Sec.
1501(b)(4)-(8), Aug. 20, 1996, 110 Stat. 1826.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Small Business Job Protection
Act of 1996, referred to in subsec. (c), is the date of enactment
of Pub. L. 104-188, which was approved Aug. 20, 1996.
-MISC1-
AMENDMENTS
1996 - Subsec. (a). Pub. L. 104-188, Sec. 1501(b)(4), (5),
substituted "paragraph (2)" for "paragraphs (2) and (3)" in closing
provisions, inserted "or" at end of par. (1), struck out "or" at
end of par. (2), and struck out par. (3) which read as follows:
"such amounts would, but for this subsection, be included under
section 951(a)(1)(C) in the gross income of,".
Subsec. (c). Pub. L. 104-188, Sec. 1501(b)(6), inserted at end
"References in this subsection to section 951(a)(1)(C) and
subsection (a)(3) shall be treated as references to such provisions
as in effect on the day before the date of the enactment of the
Small Business Job Protection Act of 1996."
Subsec. (f)(1). Pub. L. 104-188, Sec. 1501(b)(7), reenacted
heading without change and amended text generally. Prior to
amendment, text read as follows: "For purposes of this section -
"(A) amounts that would be included under subparagraph (B) of
section 951(a)(1) (determined without regard to this section)
shall be treated as attributable first to earnings described in
subsection (c)(2), and then to earnings described in subsection
(c)(3), and
"(B) amounts that would be included under subparagraph (C) of
section 951(a)(1) (determined without regard to this section)
shall be treated as attributable first to earnings described in
subsection (c)(2) to the extent the earnings so described were
accumulated in taxable years beginning after September 30, 1993,
and then to earnings described in subsection (c)(3)."
Subsec. (f)(2). Pub. L. 104-188, Sec. 1501(b)(8), substituted
"section 951(a)(1)(B)" for "subparagraphs (B) and (C) of section
951(a)(1)".
1993 - Subsec. (a). Pub. L. 103-66, Sec. 13231(c)(2)(A), (4)(A),
substituted in introductory provisions "earnings and profits" for
"earnings and profits for taxable year" and inserted at end of
closing provisions "The rules of subsection (c) shall apply for
purposes of paragraph (1) of this subsection and the rules of
subsection (f) shall apply for purposes of paragraphs (2) and (3)
of this subsection."
Subsec. (a)(3). Pub. L. 103-66, Sec. 13231(c)(1), added par. (3).
Subsec. (b). Pub. L. 103-66, Sec. 13231(c)(4)(A), substituted
"earnings and profits" for "earnings and profits for a taxable
year".
Subsec. (c)(1). Pub. L. 103-66, Sec. 13231(c)(2)(C), amended par.
(1) generally. Prior to amendment, par. (1) read as follows: "first
to earnings and profits attributable to amounts included in gross
income under section 951(a)(1)(B) (or which would have been
included except for subsection (a)(2) of this section),".
Subsec. (c)(2). Pub. L. 103-66, Sec. 13231(c)(4)(B), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "then
to earnings and profits attributable to amounts included in gross
income under section 951(a)(1)(A) (but reduced by amounts not
included under section 951(a)(1)(B) because of the exclusion in
subsection (a)(2) of this section), and".
Subsec. (f). Pub. L. 103-66, Sec. 13231(c)(2)(B), added subsec.
(f).
1988 - Subsec. (e). Pub. L. 100-647 substituted "such person (or,
in any case to which section 1248(e) applies, of the domestic
corporation referred to in section 1248(e)(2)) under" for "such
person under".
1986 - Subsec. (d). Pub. L. 99-514 inserted "; except that such
distributions shall immediately reduce earnings and profits".
1984 - Subsec. (e). Pub. L. 98-369 added subsec. (e).
1976 - Subsecs. (a), (b). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1996, and to taxable
years of United States shareholders within which or with which such
taxable years of foreign corporations end, see section 1501(d) of
Pub. L. 104-188, set out as a note under section 904 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years of
foreign corporations beginning after Sept. 30, 1993, and to taxable
years of United States shareholders in which or with which such
taxable years of foreign corporations end, see section 13231(e) of
Pub. L. 103-66, set out as a note under section 951 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1012(bb)(7)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply in the case of transactions to which section 1248(e) of the
1986 Code applies and which occur after December 31, 1986."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1226(c)(2) of Pub. L. 99-514 provided that: "The
amendment made by subsection (b) [amending this section] shall
apply to distributions after the date of the enactment of this Act
[Oct. 22, 1986]."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 133(d)(2), (3) of Pub. L. 98-369, as amended by Pub. L.
99-514, Sec. 2, title XVIII, Sec. 1810(i)(2), Oct. 22, 1986, 100
Stat. 2095, 2829; Pub. L. 100-647, title I, Sec. 1018(g)(2), Nov.
10, 1988, 102 Stat. 3582, provided that:
"(2) Subsections (b) and (c). - Except as provided in paragraph
(3), the amendments made by subsections (b) and (c) [amending this
section and section 1248 of this title] shall apply with respect to
transactions to which subsection (a) or (f) of section 1248 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] applies
occurring after the date of the enactment of this Act [July 18,
1984].
"(3) Election of earlier date for certain transactions. -
"(A) In general. - If the appropriate election is made under
subparagraph (B), the amendments made by subsection (b) [amending
this section and section 1248 of this title] shall apply with
respect to transactions to which subsection (a) or (f) of section
1248 of such Code applies occurring after October 9, 1975.
"(B) Election. -
"(i) Subparagraph (A) shall apply with respect to
transactions to which subsection (a) of section 1248 of such
Code applies if the foreign corporation described in such
subsection (or its successor in interest) so elects.
"(ii) Subparagraph (A) shall apply with respect to
transactions to which subsection (f) of section 1248 of such
Code applies if the domestic corporation described in section
1248(f)(1) of such Code (or its successor) so elects.
"(iii) Any election under clause (i) or (ii) shall be made
not later than the date which is 1 year after the date of the
enactment of the Tax Reform Act of 1986 [Oct. 22, 1986] and
shall be made in such manner as the Secretary of the Treasury
or his delegate shall prescribe."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 304, 851, 951, 956, 960,
961, 962, 986, 1246, 1248, 1291, 1293, 1298 of this title.
-End-
-CITE-
26 USC Sec. 960 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 960. Special rules for foreign tax credit
-STATUTE-
(a) Taxes paid by a foreign corporation
(1) Deemed paid credit
For purposes of subpart A of this part, if there is included
under section 951(a) in the gross income of a domestic
corporation any amount attributable to earnings and profits of a
foreign corporation which is a member of a qualified group (as
defined in section 902(b)) with respect to the domestic
corporation, then, except to the extent provided in regulations,
section 902 shall be applied as if the amount so included were a
dividend paid by such foreign corporation (determined by applying
section 902(c) in accordance with section 904(d)(3)(B)).
(2) Taxes previously deemed paid by domestic corporation
If a domestic corporation receives a distribution from a
foreign corporation, any portion of which is excluded from gross
income under section 959, the income, war profits, and excess
profits taxes paid or deemed paid by such foreign corporation to
any foreign country or to any possession of the United States in
connection with the earnings and profits of such foreign
corporation from which such distribution is made shall not be
taken into account for purposes of section 902, to the extent
such taxes were deemed paid by a domestic corporation under
paragraph (1) for any prior taxable year.
(3) Taxes paid by foreign corporation and not previously deemed
paid by domestic corporation
Any portion of a distribution from a foreign corporation
received by a domestic corporation which is excluded from gross
income under section 959(a) shall be treated by the domestic
corporation as a dividend, solely for purposes of taking into
account under section 902 any income, war profits, or excess
profits taxes paid to any foreign country or to any possession of
the United States, on or with respect to the accumulated profits
of such foreign corporation from which such distribution is made,
which were not deemed paid by the domestic corporation under
paragraph (1) for any prior taxable year.
(b) Special rules for foreign tax credit in year of receipt of
previously taxed earnings and profits
(1) Increase in section 904 limitation
In the case of any taxpayer who -
(A) either (i) chose to have the benefits of subpart A of
this part for a taxable year beginning after September 30,
1993, in which he was required under section 951(a) to include
any amount in his gross income, or (ii) did not pay or accrue
for such taxable year any income, war profits, or excess
profits taxes to any foreign country or to any possession of
the United States,
(B) chooses to have the benefits of subpart A of this part
for any taxable year in which he receives 1 or more
distributions or amounts which are excludable from gross income
under section 959(a) and which are attributable to amounts
included in his gross income for taxable years referred to in
subparagraph (A), and
(C) for the taxable year in which such distributions or
amounts are received, pays, or is deemed to have paid, or
accrues income, war profits, or excess profits taxes to a
foreign country or to any possession of the United States with
respect to such distributions or amounts,
the limitation under section 904 for the taxable year in which
such distributions or amounts are received shall be increased by
the lesser of the amount of such taxes paid, or deemed paid, or
accrued with respect to such distributions or amounts or the
amount in the excess limitation account as of the beginning of
such taxable year.
(2) Excess limitation account
(A) Establishment of account
Each taxpayer meeting the requirements of paragraph (1)(A)
shall establish an excess limitation account. The opening
balance of such account shall be zero.
(B) Increases in account
For each taxable year beginning after September 30, 1993, the
taxpayer shall increase the amount in the excess limitation
account by the excess (if any) of -
(i) the amount by which the limitation under section 904(a)
for such taxable year was increased by reason of the total
amount of the inclusions in gross income under section 951(a)
for such taxable year, over
(ii) the amount of any income, war profits, and excess
profits taxes paid, or deemed paid, or accrued to any foreign
country or possession of the United States which were
allowable as a credit under section 901 for such taxable year
and which would not have been allowable but for the
inclusions in gross income described in clause (i).
Proper reductions in the amount added to the account under the
preceding sentence for any taxable year shall be made for any
increase in the credit allowable under section 901 for such
taxable year by reason of a carryback if such increase would
not have been allowable but for the inclusions in gross income
described in clause (i).
(C) Decreases in account
For each taxable year beginning after September 30, 1993, for
which the limitation under section 904 was increased under
paragraph (1), the taxpayer shall reduce the amount in the
excess limitation account by the amount of such increase.
(3) Distributions of income previously taxed in years beginning
before October 1, 1993
If the taxpayer receives a distribution or amount in a taxable
year beginning after September 30, 1993, which is excluded from
gross income under section 959(a) and is attributable to any
amount included in gross income under section 951(a) for a
taxable year beginning before October 1, 1993, the limitation
under section 904 for the taxable year in which such amount or
distribution is received shall be increased by the amount
determined under this subsection as in effect on the day before
the date of the enactment of the Revenue Reconcilation (!1) Act
of 1993.
(4) Cases in which taxes not to be allowed as deduction
In the case of any taxpayer who -
(A) chose to have the benefits of subpart A of this part for
a taxable year in which he was required under section 951(a) to
include in his gross income an amount in respect of a
controlled foreign corporation, and
(B) does not choose to have the benefits of subpart A of this
part for the taxable year in which he receives a distribution
or amount which is excluded from gross income under section
959(a) and which is attributable to earnings and profits of the
controlled foreign corporation which was included in his gross
income for the taxable year referred to in subparagraph (A),
no deduction shall be allowed under section 164 for the taxable
year in which such distribution or amount is received for any
income, war profits, or excess profits taxes paid or accrued to
any foreign country or to any possession of the United States on
or with respect to such distribution or amount.
(5) Insufficient taxable income
If an increase in the limitation under this subsection exceeds
the tax imposed by this chapter for such year, the amount of such
excess shall be deemed an overpayment of tax for such year.
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1020;
amended Pub. L. 94-455, title X, Secs. 1031(b)(1), 1033(b)(2),
1037(a), Oct. 4, 1976, 90 Stat. 1622, 1628, 1633; Pub. L. 99-514,
title XII, Sec. 1202(b), Oct. 22, 1986, 100 Stat. 2530; Pub. L.
103-66, title XIII, Sec. 13233(b)(1), Aug. 10, 1993, 107 Stat. 502;
Pub. L. 105-34, title XI, Sec. 1113(b), Aug. 5, 1997, 111 Stat.
971.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Revenue Reconciliation Act of
1993, referred to in subsec. (b)(3), is the date of enactment of
Pub. L. 103-66, which was approved Aug. 10, 1993.
-MISC1-
AMENDMENTS
1997 - Subsec. (a)(1). Pub. L. 105-34 amended heading and text of
par. (1) generally. Prior to amendment, text read as follows: "For
purposes of subpart A of this part, if there is included, under
section 951(a), in the gross income of a domestic corporation any
amount attributable to earnings and profits -
"(A) of a foreign corporation (hereafter in this subsection
referred to as the 'first foreign corporation') at least 10
percent of the voting stock of which is owned by such domestic
corporation, or
"(B) of a second foreign corporation (hereinafter in this
subsection referred to as the 'second foreign corporation') at
least 10 percent of the voting stock of which is owned by the
first foreign corporation, or
"(C) of a third foreign corporation (hereinafter in this
subsection referred to as the 'third foreign corporation') at
least 10 percent of the voting stock of which is owned by the
second foreign corporation,
then, except to the extent provided in regulations, such domestic
corporation shall be deemed to have paid a portion of such foreign
corporation's post-1986 foreign income taxes determined under
section 902 in the same manner as if the amount so included were a
dividend paid by such foreign corporation (determined by applying
section 902(c) in accordance with section 904(d)(3)(B)). This
paragraph shall not apply with respect to any amount included in
the gross income of such domestic corporation attributable to
earnings and profits of the second foreign corporation or of the
third foreign corporation unless, in the case of the second foreign
corporation, the percentage-of-voting-stock requirement of section
902(b)(3)(A) is satisfied, and in the case of the third foreign
corporation, the percentage-of-voting-stock requirement of section
902(b)(3)(B) is satisfied."
1993 - Subsec. (b). Pub. L. 103-66 added pars. (1) to (3),
redesignated former pars. (3) and (4) as (4) and (5), respectively,
and struck out former par. (1) relating to increase in section 904
limitation and former par. (2) relating to the amount of increase.
1986 - Subsec. (a)(1). Pub. L. 99-514 substituted "then, except
to the extent provided in regulations, such domestic corporation
shall be deemed to have paid a portion of such foreign
corporation's post-1986 foreign income taxes determined under
section 902 in the same manner as if the amount so included were a
dividend paid by such foreign corporation (determined by applying
section 902(c) in accordance with section 904(d)(3)(B))" for "then,
under regulations prescribed by the Secretary, such domestic
corporation shall be deemed to have paid the same proportion of the
total income, war profits, and excess profits taxes paid (or deemed
paid) by such foreign corporation to a foreign country or
possession of the United States for the taxable year on or with
respect to the earnings and profits of such foreign corporation
which the amount of earnings and profits of such foreign
corporation so included in gross income of the domestic corporation
bears to the entire amount of the earnings and profits of such
corporation for such taxable year".
1976 - Subsec. (a)(1). Pub. L. 94-455, Secs. 1033(b)(2), 1037(a),
substituted "bears to the entire amount of the earnings and profits
of such foreign corporation for such taxable year" for "bears to-"
after "gross income of the domestic corporation", struck out
subpars. (C) and (D) relating to corporations which are and are not
less developed country corporations, inserted in subpar. (A)
"(hereafter in this subsection referred to as the 'first foreign
corporation')" after "foreign corporation", substituted in subpar.
(B) "of a second foreign corporation (hereinafter in this
subsection referred to as the 'second foreign corporation') at
least 10 percent of the voting stock of which is owned by the first
foreign corporation, or" for "of a foreign corporation at least 50
percent of the voting stock of which is owned by a foreign
corporation at least 10 percent of the voting stock of which in
turn owned by such domestic corporation" after "(B)", added subpar.
(C), and inserted at end "This paragraph shall not apply with
respect to any amount included in the gross income of such domestic
corporation attributable to earning and profits of the second
foreign corporation or of the third foreign corporation unless, in
the case of the second foreign corporation, the
percentage-of-voting-stock requirement of section 902(b)(3)(A) is
satisfied, and in the case of the third foreign corporation, the
percentage-of-voting-stock requirement of section 902(b)(3)(B) is
satisfied."
Subsec. (b). Pub. L. 94-455, Sec. 1031(b)(1), struck out
"applicable" in par. (1) after "amount, the", in par. (2) after
"increase of the", and in subpar. (A) of par. (2) after "by which
the".
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable, with special rule, to
taxes of foreign corporations for taxable years of such
corporations beginning after Aug. 5, 1997, see section 1113(c) of
Pub. L. 105-34, set out as a note under section 902 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13233(b)(2) of Pub. L. 103-66 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after September 30, 1993."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to distributions by
foreign corporations out of, and to inclusions under section 951(a)
of this title attributable to, earnings and profits for taxable
years beginning after Dec. 31, 1986, see section 1202(e) of Pub. L.
99-514, set out as a note under section 902 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1031(b)(1) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 1031(c) of
Pub. L. 94-455, set out as a note under section 904 of this title.
Amendment by section 1033(b)(2) of Pub. L. 94-455 applicable in
respect of any distribution received by a domestic corporation
after Dec. 31, 1977, and in respect of any distribution received by
a domestic corporation before Jan. 1, 1978, in a taxable year of
such corporation beginning after Dec. 31, 1975, but only to the
extent that such distribution is made out of the accumulated
profits of a foreign corporation for a taxable year beginning after
Dec. 31, 1975, see section 1033(c) of Pub. L. 94-455, set out as a
note under section 902 of this title.
Section 1037(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by this section [amending this section] shall apply
with respect to earnings and profits of a foreign corporation,
included, under section 951(a) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], in the gross income of a domestic
corporation in taxable years beginning after December 31, 1976."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 78, 245, 535, 545, 865,
901, 902, 904, 905, 907, 908, 958, 959, 962, 1293, 6038 of this
title.
-FOOTNOTE-
(!1) So in original. Probably should be "Reconciliation".
-End-
-CITE-
26 USC Sec. 961 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 961. Adjustments to basis of stock in controlled foreign
corporations and of other property
-STATUTE-
(a) Increase in basis
Under regulations prescribed by the Secretary, the basis of a
United States shareholder's stock in a controlled foreign
corporation, and the basis of property of a United States
shareholder by reason of which he is considered under section
958(a)(2) as owning stock of a controlled foreign corporation,
shall be increased by the amount required to be included in his
gross income under section 951(a) with respect to such stock or
with respect to such property, as the case may be, but only to the
extent to which such amount was included in the gross income of
such United States shareholder. In the case of a United States
shareholder who has made an election under section 962 for the
taxable year, the increase in basis provided by this subsection
shall not exceed an amount equal to the amount of tax paid under
this chapter with respect to the amounts required to be included in
his gross income under section 951(a).
(b) Reduction in basis
(1) In general
Under regulations prescribed by the Secretary, the adjusted
basis of stock or other property with respect to which a United
States shareholder or a United States person receives an amount
which is excluded from gross income under section 959(a) shall be
reduced by the amount so excluded. In the case of a United States
shareholder who has made an election under section 962 for any
prior taxable year, the reduction in basis provided by this
paragraph shall not exceed an amount equal to the amount received
which is excluded from gross income under section 959(a) after
the application of section 962(d).
(2) Amount in excess of basis
To the extent that an amount excluded from gross income under
section 959(a) exceeds the adjusted basis of the stock or other
property with respect to which it is received, the amount shall
be treated as gain from the sale or exchange of property.
(c) Basis adjustments in stock held by foreign corporation
Under regulations prescribed by the Secretary, if a United States
shareholder is treated under section 958(a)(2) as owning any stock
in a controlled foreign corporation which is actually owned by
another controlled foreign corporation, adjustments similar to the
adjustments provided by subsections (a) and (b) shall be made to
the basis of such stock in the hands of such other controlled
foreign corporation, but only for the purposes of determining the
amount included under section 951 in the gross income of such
United States shareholder (or any other United States shareholder
who acquires from any person any portion of the interest of such
United States shareholder by reason of which such shareholder was
treated as owning such stock, but only to the extent of such
portion, and subject to such proof of identity of such interest as
the Secretary may prescribe by regulations).
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1022;
amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1834; Pub. L. 105-34, title XI, Sec. 1112(b)(1),
Aug. 5, 1997, 111 Stat. 969.)
-MISC1-
AMENDMENTS
1997 - Subsec. (c). Pub. L. 105-34 added subsec. (c).
1976 - Subsecs. (a), (b)(1). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1112(b)(2) of Pub. L. 105-34 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
for purposes of determining inclusions for taxable years of United
States shareholders beginning after December 31, 1997."
DUAL RESIDENT COMPANIES
Basis adjustments of this section not applicable in certain
circumstances involving dual resident companies, see section 6126
of Pub. L. 100-647, set out as a note under section 1502 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 304, 1016 of this title.
-End-
-CITE-
26 USC Sec. 962 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 962. Election by individuals to be subject to tax at corporate
rates
-STATUTE-
(a) General rule
Under regulations prescribed by the Secretary, in the case of a
United States shareholder who is an individual and who elects to
have the provisions of this section apply for the taxable year -
(1) the tax imposed under this chapter on amounts which are
included in his gross income under section 951(a) shall (in lieu
of the tax determined under sections 1 and 55) be an amount equal
to the tax which would be imposed under sections 11 and 55 if
such amounts were received by a domestic corporation, and
(2) for purposes of applying the provisions of section 960
(relating to foreign tax credit) such amounts shall be treated as
if they were received by a domestic corporation.
(b) Election
An election to have the provisions of this section apply for any
taxable year shall be made by a United States shareholder at such
time and in such manner as the Secretary shall prescribe by
regulations. An election made for any taxable year may not be
revoked except with the consent of the Secretary.
(c) Pro ration of each section 11 bracket amount
For purposes of applying subsection (a)(1), the amount in each
taxable income bracket in the tax table in section 11(b) shall not
exceed an amount which bears the same ratio to such bracket amount
as the amount included in the gross income of the United States
shareholder under section 951(a) for the taxable year bears to such
shareholder's pro rata share of the earnings and profits for the
taxable year of all controlled foreign corporations with respect to
which such shareholder includes any amount in gross income under
section 951(a).
(d) Special rule for actual distributions
The earnings and profits of a foreign corporation attributable to
amounts which were included in the gross income of a United States
shareholder under section 951(a) and with respect to which an
election under this section applied shall, when such earnings and
profits are distributed, notwithstanding the provisions of section
959(a)(1), be included in gross income to the extent that such
earnings and profits so distributed exceed the amount of tax paid
under this chapter on the amounts to which such election applied.
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1023;
amended Pub. L. 94-12, title III, Sec. 303(c)(3), Mar. 29, 1975, 89
Stat. 45; Pub. L. 94-164, Sec. 4(d)(1), Dec. 23, 1975, 89 Stat.
975; Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976,
90 Stat. 1834; Pub. L. 95-600, title III, Sec. 301(b)(16), Nov. 6,
1978, 92 Stat. 2822; Pub. L. 100-647, title I, Sec. 1007(g)(11),
Nov. 10, 1988, 102 Stat. 3435.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a)(1). Pub. L. 100-647 substituted "sections 1
and 55" and "sections 11 and 55" for "section 1" and "section 11",
respectively.
1978 - Subsec. (c). Pub. L. 95-600 substituted provisions
relating to the pro ration of each section 11 bracket amount for
provisions relating to the surtax exemption.
1976 - Subsecs. (a), (b). Pub. L. 94-455 struck out "or his
delegate" after "Secretary" wherever appearing.
1975 - Subsec. (c). Pub. L. 94-164 substituted "same ratio to the
surtax exemption" for "same ratio to $25,000" in subsec. (c) as
such subsec. (c) is in effect for taxable years ending after Dec.
31, 1975.
Pub. L. 94-12 substituted "$50,000" for "$25,000".
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 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out
as a note under section 11 of this title.
EFFECTIVE AND TERMINATION DATES OF 1975 AMENDMENTS
Amendment by Pub. L. 94-164 applicable to taxable years beginning
after Dec. 31, 1975, see section 4(e) of Pub. L. 94-164, set out as
a note under section 11 of this title.
Amendment by Pub. L. 94-12 applicable to taxable years ending
after Dec. 31, 1974, but to cease to apply for taxable years ending
after Dec. 31, 1975, see section 305(b)(1) of Pub. L. 94-12, set
out as a note under section 11 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 961 of this title.
-End-
-CITE-
26 USC Sec. 963 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
[Sec. 963. Repealed. Pub. L. 94-12, title VI, Sec. 602(a)(1), Mar.
29, 1975, 89 Stat. 58]
-MISC1-
Section, added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76
Stat. 1023; amended Pub. L. 88-272, title I, Sec. 123(b), Feb. 26,
1964, 78 Stat. 29; Pub. L. 90-364, title I, Sec. 102(b), June 28,
1968, 82 Stat. 255; Pub. L. 91-53, Sec. 5(b), Aug. 7, 1969, 83
Stat. 95; Pub. L. 91-172, title VII, Sec. 701(b), Dec. 30, 1969, 83
Stat. 659, dealt with the receipt of minimum distributions by
domestic corporations.
EFFECTIVE DATE OF REPEAL
Repeal effective with respect to taxable years for foreign
corporations beginning after Dec. 31, 1975, and to taxable years of
United States shareholders (within the meaning of section 951(b) of
this title) within which or with which such taxable years of such
foreign corporations end, see section 602(f) of Pub. L. 94-12, set
out as an Effective Date note under section 955 of this title.
-End-
-CITE-
26 USC Sec. 964 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart F - Controlled Foreign Corporations
-HEAD-
Sec. 964. Miscellaneous provisions
-STATUTE-
(a) Earnings and profits
Except as provided in section 312(k)(4), for purposes of this
subpart, the earnings and profits of any foreign corporation, and
the deficit in earnings and profits of any foreign corporation, for
any taxable year shall be determined according to rules
substantially similar to those applicable to domestic corporations,
under regulations prescribed by the Secretary. In determining such
earnings and profits, or the deficit in such earnings and profits,
the amount of any illegal bribe, kickback, or other payment (within
the meaning of section 162(c)) shall not be taken into account to
decrease such earnings and profits or to increase such deficit. The
payments referred to in the preceding sentence are payments which
would be unlawful under the Foreign Corrupt Practices Act of 1977
if the payor were a United States person.
(b) Blocked foreign income
Under regulations prescribed by the Secretary, no part of the
earnings and profits of a controlled foreign corporation for any
taxable year shall be included in earnings and profits for purposes
of sections 952, 955, and 956, if it is established to the
satisfaction of the Secretary that such part could not have been
distributed by the controlled foreign corporation to United States
shareholders who own (within the meaning of section 958(a)) stock
of such controlled foreign corporation because of currency or other
restrictions or limitations imposed under the laws of any foreign
country.
(c) Records and accounts of United States shareholders
(1) Records and accounts to be maintained
The Secretary may by regulations require each person who is, or
has been, a United States shareholder of a controlled foreign
corporation to maintain such records and accounts as may be
prescribed by such regulations as necessary to carry out the
provisions of this subpart and subpart G.
(2) Two or more persons required to maintain or furnish the same
records and accounts with respect to the same foreign
corporation
Where, but for this paragraph, two or more United States
persons would be required to maintain or furnish the same records
and accounts as may by regulations be required under paragraph
(1) with respect to the same controlled foreign corporation for
the same period, the Secretary may by regulations provide that
the maintenance or furnishing of such records and accounts by
only one such person shall satisfy the requirements of paragraph
(1) for such other persons.
(d) Treatment of certain branches
(1) In general
For purposes of this chapter, section 6038, section 6046, and
such other provisions as may be specified in regulations -
(A) a qualified insurance branch of a controlled foreign
corporation shall be treated as a separate foreign corporation
created under the laws of the foreign country with respect to
which such branch qualifies under paragraph (2), and
(B) except as provided in regulations, any amount directly or
indirectly transferred or credited from such branch to one or
more other accounts of such controlled foreign corporation
shall be treated as a dividend paid to such controlled foreign
corporation.
(2) Qualified insurance branch
For purposes of paragraph (1), the term "qualified insurance
branch" means any branch of a controlled foreign corporation
which is licensed and predominantly engaged on a permanent basis
in the active conduct of an insurance business in a foreign
country if -
(A) separate books and accounts are maintained for such
branch,
(B) the principal place of business of such branch is in such
foreign country,
(C) such branch would be taxable under subchapter L if it
were a separate domestic corporation, and
(D) an election under this paragraph applies to such branch.
An election under this paragraph shall apply to the taxable year
for which made and all subsequent taxable years unless revoked
with the consent of the Secretary.
(3) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection.
(e) Gain on certain stock sales by controlled foreign corporations
treated as dividends
(1) In general
If a controlled foreign corporation sells or exchanges stock in
any other foreign corporation, gain recognized on such sale or
exchange shall be included in the gross income of such controlled
foreign corporation as a dividend to the same extent that it
would have been so included under section 1248(a) if such
controlled foreign corporation were a United States person. For
purposes of determining the amount which would have been so
includible, the determination of whether such other foreign
corporation was a controlled foreign corporation shall be made
without regard to the preceding sentence.
(2) Same country exception not applicable
Clause (i) of section 954(c)(3)(A) shall not apply to any
amount treated as a dividend by reason of paragraph (1).
(3) Clarification of deemed sales
For purposes of this subsection, a controlled foreign
corporation shall be treated as having sold or exchanged any
stock if, under any provision of this subtitle, such controlled
foreign corporation is treated as having gain from the sale or
exchange of such stock.
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1027;
amended Pub. L. 91-172, title IV, Sec. 442(b)(1), Dec. 30, 1969, 83
Stat. 628; Pub. L. 94-455, title X, Sec. 1065(b), title XIX, Secs.
1901(b)(32)(B)(iii), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1654,
1800, 1834; Pub. L. 97-34, title II, Sec. 206(c), Aug. 13, 1981, 95
Stat. 225; Pub. L. 97-248, title II, Sec. 288(b)(2), Sept. 3, 1982,
96 Stat. 571; Pub. L. 100-647, title VI, Sec. 6129(a), Nov. 10,
1988, 102 Stat. 3716; Pub. L. 105-34, title XI, Sec. 1111(a), Aug.
5, 1997, 111 Stat. 968.)
-REFTEXT-
REFERENCES IN TEXT
The Foreign Corrupt Practices Act of 1977, referred to in subsec.
(a), is title I of Pub. L. 95-213, Dec. 19, 1977, 91 Stat. 1494, as
amended, which enacted sections 78dd-1 to 78dd-3 of Title 15,
Commerce and Trade, and amended sections 78m and 78ff of Title 15.
For complete classification of this Act to the Code, see Short
Title of 1977 Amendment note set out under section 78a of Title 15
and Tables.
-MISC1-
AMENDMENTS
1997 - Subsec. (e). Pub. L. 105-34 added subsec. (e).
1988 - Subsec. (d). Pub. L. 100-647 added subsec. (d).
1982 - Subsec. (a). Pub. L. 97-248 inserted provision that
payments referred to in sentence beginning "In determining such
earnings and profits" are payments which would be unlawful under
the Foreign Corrupt Practices Act of 1977 if the payor were a
United States person.
1981 - Subsec. (a). Pub. L. 97-34 substituted "section 312(k)(4)"
for "section 312(k)(3)".
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1065(b),
1901(b)(32)(B)(ii), 1906(b)(13)(A), struck out "or his delegate"
after "Secretary", inserted second sentence, and substituted
"312(k)(3)" for "312(m)(3)" after "provided in section".
Subsecs. (b), (c)(1), (2). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary" whenever appearing.
1969 - Subsec. (a). Pub. L. 91-172 inserted reference to the
exception provided for in section 312(m)(3).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1111(c)(1) of Pub. L. 105-34 provided that: "The
amendment made by subsection (a) [amending this section] shall
apply to gain recognized on transactions occurring after the date
of the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6129(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years of foreign corporations beginning after December 31,
1988."
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to payments made after
Sept. 3, 1982, see section 288(c) of Pub. L. 97-248, set out as a
note under section 162 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property placed in
service after Dec. 31, 1980, in taxable years ending after that
date, see section 209(a) of Pub. L. 97-34, set out as an Effective
Date note under section 168 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1065(b) of Pub. L. 94-455 applicable to
payments described in section 162(c) of this title made more than
30 days after Oct. 4, 1976, see section 1066(b) of Pub. L. 94-455,
set out as a note under section 952 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 902 of this title.
-End-
-CITE-
26 USC Subpart G - Export Trade Corporations 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart G - Export Trade Corporations
-HEAD-
SUBPART G - EXPORT TRADE CORPORATIONS
-MISC1-
Sec.
970. Reduction of subpart F income of export trade
corporations.
971. Definitions.
[972. Repealed.]
AMENDMENTS
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(27)(B), Oct. 4,
1976, 90 Stat. 1799, struck out item 972 "Consolidation of group of
export trade corporations".
1962 - Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1027,
added heading of subpart G, and items 970 to 972.
-SECREF-
SUBPART REFERRED TO IN OTHER SECTIONS
This subpart is referred to in sections 954, 964 of this title.
-End-
-CITE-
26 USC Sec. 970 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart G - Export Trade Corporations
-HEAD-
Sec. 970. Reduction of subpart F income of export trade
corporations
-STATUTE-
(a) Export trade income constituting foreign base company income
(1) In general
In the case of a controlled foreign corporation (as defined in
section 957) which for the taxable year is an export trade
corporation, the subpart F income (determined without regard to
this subpart) of such corporation for such year shall be reduced
by an amount equal to so much of the export trade income (as
defined in section 971(b)) of such corporation for such year as
constitutes foreign base company income (as defined in section
954), but only to the extent that such amount does not exceed
whichever of the following amounts is the lesser:
(A) an amount equal to 1 1/2 times so much of the export
promotion expenses (as defined in section 971(d)) of such
corporation for such year as is probably allocable to the
export trade income which constitutes foreign base company
income of such corporation for such year, or
(B) an amount equal to 10 percent of so much of the gross
receipts for such year (or, in the case of gross receipts
arising from commissions, fees, or other compensation for its
services, so much of the gross amount upon the basis of which
such commissions, fees, or other compensation is computed)
accruing to such export trade corporation from the sale,
installation, operation, maintenance, or use of property in
respect of which such corporation derives export trade income
as is properly allocable to the export trade income which
constitutes foreign base company income of such corporation for
such year.
The allocations with respect to export trade income which
constitutes foreign base company income under subparagraphs (A)
and (B) shall be made under regulations prescribed by the
Secretary.
(2) Overall limitation
The reduction under paragraph (1) for any taxable year shall
not exceed an amount which bears the same ratio to the increase
in the investments in export trade assets (as defined in section
971(c)) of such corporation for such year as the export trade
income which constitutes foreign base company income of such
corporation for such year bears to the entire export trade income
of such corporation for such year.
(b) Inclusion of certain previously excluded amounts
Each United States shareholder of a controlled foreign
corporation which for any prior taxable year was an export trade
corporation shall include in his gross income under section
951(a)(1)(A)(ii), as an amount to which section 955 (relating to
withdrawal of previously excluded subpart F income from qualified
investment) applies, his pro rata share of the amount of decrease
in the investments in export trade assets of such corporation for
such year, but only to the extent that his pro rata share of such
amount does not exceed an amount equal to -
(1) his pro rata share of the sum of (A) the amounts by which
the subpart F income of such corporation was reduced for all
prior taxable years under subsection (a), and (B) the amounts not
included in subpart F income (determined without regard to this
subpart) for all prior taxable years by reason of the treatment
(under section 972 as in effect before the date of the enactment
of the Tax Reform Act of 1976) of two or more controlled foreign
corporations which are export trade corporations as a single
controlled foreign corporation, reduced by
(2) the sum of the amounts which were included in his gross
income under section 951(a)(1)(A)(ii) under the provisions of
this subsection for all prior taxable years.
(c) Investments in export trade assets
(1) Amount of investments
For purposes of this section, the amount taken into account
with respect to any export trade asset shall be its adjusted
basis, reduced by any liability to which the asset is subject.
(2) Increase in investments in export trade assets
For purposes of subsection (a), the amount of increase in
investments in export trade assets of any controlled foreign
corporation for any taxable year is the amount by which -
(A) the amount of such investments at the close of the
taxable year, exceeds
(B) the amount of such investments at the close of the
preceding taxable year.
(3) Decrease in investments in export trade assets
For purposes of subsection (b), the amount of decrease in
investments in export trade assets of any controlled foreign
corporation for any taxable year is the amount by which -
(A) the amount of such investments at the close of the
preceding taxable year (reduced by an amount equal to the
amount of net loss sustained during the taxable year with
respect to export trade assets), exceeds
(B) the amount of such investments at the close of the
taxable year.
(4) Special rule
A United States shareholder of an export trade corporation may,
under regulations prescribed by the Secretary, make the
determinations under paragraphs (2) and (3) as of the close of
the 75th day after the close of the years referred to in such
paragraphs in lieu of on the last day of such years. A United
States shareholder of an export trade corporation may, under
regulations prescribed by the Secretary, make the determinations
under paragraphs (2) and (3) with respect to export trade assets
described in section 971(c)(3) as of the close of the years
following the years referred to in such paragraphs, or as of the
close of such longer period of time as such regulations may
permit, in lieu of on the last day of such years and in lieu of
on the day prescribed in the preceding sentence. Any election
under this paragraph made with respect to any taxable year shall
apply to such year and to all succeeding taxable years unless the
Secretary consents to the revocation of such election.
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1972, 76 Stat. 1027;
amended Pub. L. 94-455, title XIX, Secs. 1901(b)(27)(A),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1799, 1834.)
-REFTEXT-
REFERENCES IN TEXT
The Tax Reform Act of 1976, referred to in subsec. (b)(1), is
Pub. L. 94-455, Oct. 4, 1976, 90 Stat. 1250, as amended, which was
enacted Oct. 4, 1976. Section 972 of this title was repealed by
Pub. L. 94-455, title XIX, Sec. 1901(a)(120), Oct. 4, 1976, 90
Stat. 1784. For complete classification of this Act to the Code,
see Tables.
-MISC1-
AMENDMENTS
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (b)(1). Pub. L. 94-455, Sec. 1901(b)(27)(A), substituted
"treatment (under section 972 as in effect before the date of
enactment of the Tax Reform Act of 1976) of two or more controlled
foreign corporations which are export trade corporations as a
single controlled corporation" for "application of section 972"
after "reason of the".
Subsec. (c)(4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary" in three places.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(27)(A) of Pub. L. 94-455 applicable
with respect to 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.
EXPORT TRADE CORPORATIONS
Section 505(a), (b) of Pub. L. 92-178, title V, Dec. 10, 1971, 85
Stat. 551, provided as follows:
"(a) Use of Terms. - Except as otherwise expressly provided,
whenever in this section a reference is made to a section, chapter,
or other provision, the reference shall be considered to be made to
a section, chapter, or other provision of the Internal Revenue Code
of 1954, and terms used in this section shall have the same meaning
as when used in such Code.
"(b) Transfer to a DISC of Assets of Export Trade Corporation. -
"(1) In general. - If a corporation (hereinafter in this
section called 'parent') owns all of the outstanding stock of an
export trade corporation (as defined in section 971), and the
export trade corporation, during a taxable year beginning before
January 1, 1976, transfers property, without receiving
consideration, to a DISC (as defined in section 992(a)) all of
whose outstanding stock is owned by the parent, and if the amount
transferred by the export trade corporation is not less than the
amount of its untaxed subpart F income (as defined in paragraph
(2) of this subsection) at the time of such transfer, then -
"(A) notwithstanding section 367 or any other provision of
chapter 1, no gain or loss to the export trade corporation, the
parent, or the DISC shall be recognized by reason of such
transfer;
"(B) the earnings and profits of the DISC shall be increased
by the amount transferred to it by the export trade corporation
and such amount shall be included in the accumulated DISC
income, and for purposes of section 861(a)(2)(D) shall be
considered to be qualified export receipts;
"(C) the adjusted basis of the assets transferred to the DISC
shall be the same in the hands of the DISC as in the hands of
the export trade corporation;
"(D) the earnings and profits of the export trade corporation
shall be reduced by the amount transferred to the DISC, to the
extent thereof, with the reduction being applied first to the
untaxed subpart F income and then to the other earnings and
profits in the order in which they were most recently
accumulated;
"(E) the basis of the parent's stock in the export trade
corporation shall be decreased by the amount obtained by
multiplying its basis in such stock by a fraction the numerator
of which is the amount transferred to the DISC and the
denominator of which is the aggregate adjusted basis of all the
assets of the export trade corporation immediately before such
transfer;
"(F) the basis of the parent's stock in the DISC shall be
increased by the amount of the reduction under subparagraph (E)
of its basis in the stock of the export trade corporation;
"(G) the property transferred to the DISC shall not be
considered to reduce the investments of the export trade
corporation in export trade assets for purposes of applying
section 970(b); and
"(H) any foreign income taxes which would have been deemed
under section 902 to have been paid by the parent if the
transfer had been made to the parent shall be treated as
foreign income taxes paid by the DISC.
For purposes of this section, the amount transferred by the
export trade corporation to the DISC shall be the aggregate of
the adjusted basis of the properties transferred, with proper
adjustment for any indebtedness secured by such property or
assumed by the DISC in connection with the transfer. For purposes
of this section, a foreign corporation which qualified as an
export trade corporation for any 3 taxable years beginning before
November 1, 1971, shall be treated as an export trade
corporation.
"(2) Definition of untaxed subpart f income. - For purposes of
this section, the term 'untaxed subpart F income' means with
respect to an export trade corporation the amount by which -
"(A) the sum of the amount by which the subpart F income of
such corporation was reduced for the taxable year and all prior
taxable years under section 970(a) and the amounts not included
in subpart F income (determined without regard to subpart G of
subchapter N of chapter 1) for all prior taxable years by
reason of the application of section 972, exceeds
"(B) the sum of the amounts which were included in the gross
income of the shareholders of such corporation under section
951(a)(1)(A)(ii) and under the provision of section 970(b) for
all prior taxable years,
determined without regard to the transfer of property described
in paragraph (1) of this subsection.
"(3) Special cases. - If the provisions of paragraph (1) of
this subsection are not applicable solely because the export
trade corporation or the DISC, or both, are not owned in the
manner prescribed in such paragraph, the provisions shall
nevertheless be applicable in such cases to the extent, and in
accordance with such rules, as may be prescribed by the Secretary
or his delegate.
"(4) Treatment of export trade assets. - If the provisions of
this subsection are applicable, accounts receivable held by an
export trade corporation and transferred to a DISC, to the extent
such receivables were export trade assets in the hands of the
export trade corporation, shall be treated as qualified export
assets for purposes of section 993(b)."
-End-
-CITE-
26 USC Sec. 971 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart G - Export Trade Corporations
-HEAD-
Sec. 971. Definitions
-STATUTE-
(a) Export trade corporations
For purposes of this subpart, the term "export trade corporation"
means -
(1) In general
A controlled foreign corporation (as defined in section 957)
which satisfies the following conditions:
(A) 90 percent or more of the gross income of such
corporation for the 3-year period immediately preceding the
close of the taxable year (or such part of such period
subsequent to the effective date of this subpart during which
the corporation was in existence) was derived from sources
without the United States, and
(B) 75 percent or more of the gross income of such
corporation for such period constituted gross income in respect
of which such corporation derived export trade income.
(2) Special rule
If 50 percent or more of the gross income of a controlled
foreign corporation in the period specified in subsection
(a)(1)(A) is gross income in respect of which such corporation
derived export trade income in respect of agricultural products
grown in the United States, it may qualify as an export trade
corporation although it does not meet the requirements of
subsection (a)(1)(B).
(3) Limitation
No controlled foreign corporation may qualify as an export
trade corporation for any taxable year beginning after October
31, 1971, unless it qualified as an export trade corporation for
any taxable year beginning before such date. If a corporation
fails to qualify as an export trade corporation for a period of
any 3 consecutive taxable years beginning after such date, it may
not qualify as an export trade corporation for any taxable year
beginning after such period.
(b) Export trade income
For the purposes of this subpart, the term "export trade income"
means net income from -
(1) the sale to an unrelated person for use, consumption, or
disposition outside the United States of export property (as
defined in subsection (e)), or from commissions, fees,
compensation, or other income from the performance of commercial,
industrial, financial, technical, scientific, managerial,
engineering, architectural, skilled, or other services in respect
to such sales or in respect of the installation or maintenance of
such export property;
(2) commissions, fees, compensation, or other income from
commercial, industrial, financial, technical, scientific,
managerial, engineering, architectural, skilled, or other
services performed in connection with the use by an unrelated
person outside the United States of patents, copyrights, secret
processes and formulas, goodwill, trademarks, trade brands,
franchises, and other like property acquired or developed and
owned by the manufacturer, producer, grower, or extractor of
export property in respect of which the export trade corporation
earns export trade income under paragraph (1);
(3) commissions, fees, rentals, or other compensation or income
attributable to the use of export property by an unrelated person
or attributable to the use of export property in the rendition of
technical, scientific, or engineering services to an unrelated
person; and
(4) interest from export trade assets described in subsection
(c)(4).
For purposes of paragraph (3), if a controlled foreign corporation
receives income from an unrelated person attributable to the use of
export property in the rendition of services to such unrelated
person together with income attributable to the rendition of other
services to such unrelated person, including personal services, the
amount of such aggregate income which shall be considered to be
attributable to the use of the export property shall (if such
amount cannot be established by reference to transactions between
unrelated persons) be that part of such aggregate income which the
cost of the export property consumed in the rendition of such
services (including a reasonable allowance for depreciation) bears
to the total cost and expenses attributable to such aggregate
income.
(c) Export trade assets
For purposes of this subpart, the term "export trade assets"
means -
(1) working capital reasonably necessary for the production of
export trade income,
(2) inventory of export property held for use, consumption, or
disposition outside the United States,
(3) facilities located outside the United States for the
storage, handling, transportation, packaging, or servicing of
export property, and
(4) evidences of indebtedness executed by persons, other than
related persons, in connection with payment for purchases of
export property for use, consumption, or disposition outside the
United States, or in connection with the payment for services
described in subsections (b)(2) and (3).
(d) Export promotion expenses
For purposes of this subpart, the term "export promotion
expenses" means the following expenses paid or incurred in the
receipt or production of export trade income -
(1) a reasonable allowance for salaries or other compensation
for personal services actually rendered for such purpose,
(2) rentals or other payments for the use of property actually
used for such purpose,
(3) a reasonable allowance for the exhaustion, wear and tear,
or obsolescence of property actually used for such purpose, and
(4) any other ordinary and necessary expenses of the
corporation to the extent reasonably allocable to the receipt or
production of export trade income.
No expense incurred within the United States shall be treated as an
export promotion expense within the meaning of the preceding
sentence, unless at least 90 percent of each category of expenses
described in such sentence is incurred outside the United States.
(e) Export property
For purposes of this subpart, the term "export property" means
any property or any interest in property manufactured, produced,
grown, or extracted in the United States.
(f) Unrelated person
For purposes of this subpart, the term "unrelated person" means a
person other than a related person as defined in section 954(d)(3).
-SOURCE-
(Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1029;
amended Pub. L. 92-178, title V, Sec. 505(c), Dec. 10, 1971, 85
Stat. 553.)
-MISC1-
AMENDMENTS
1971 - Subsec. (a)(3). Pub. L. 92-178 added par. (3).
TREATMENT OF CERTAIN FORMER EXPORT TRADE CORPORATIONS
Pub. L. 99-514, title XVIII, Sec. 1876(m), Oct. 22, 1986, 100
Stat. 2901, provided that: "If -
"(1) a corporation which is not an export trading corporation
for its most recent taxable year ending before the date of the
enactment of the Tax Reform Act of 1984 [July 18, 1984] but was
an export trading corporation for any prior taxable year, and
"(2)(A) such corporation may not qualify as an export trade
corporation for any taxable year beginning after December 31,
1984, by reason of section 971(a)(3) of the Internal Revenue Code
of 1954 [now 1986], or (B) such corporation makes an election,
before the date 6 months after the date of the enactment of this
Act [Oct. 22, 1986], not to be treated as an export trade
corporation with respect to taxable years beginning after
December 31, 1984,
rules similar to the rules of paragraphs (2) and (4) of section
805(b) of the Tax Reform Act of 1984 [set out as a note under
section 991 of this title] shall apply to such corporation. For
purposes of the preceding sentence, the term 'export trade
corporation' has the meaning given such term by section 971 of such
Code."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 865, 970, 1297 of this
title.
-End-
-CITE-
26 USC Sec. 972 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart G - Export Trade Corporations
-HEAD-
[Sec. 972. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(120),
Oct. 4, 1976, 90 Stat. 1784]
-MISC1-
Section, Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat.
1031, related to the consolidation of a group of export trade
corporations for treatment as a single controlled foreign
corporation for tax purposes.
-End-
-CITE-
26 USC [Subpart H - Repealed] 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
[Subpart H - Repealed]
-HEAD-
[SUBPART H - REPEALED]
-End-
-CITE-
26 USC Sec. 981 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
[Subpart H - Repealed]
-HEAD-
[Sec. 981. Repealed. Pub. L. 94-455, title X, Sec. 1012(b)(2), Oct.
4, 1976, 90 Stat. 1614]
-MISC1-
Section, Pub. L. 89-809, title I, Sec. 105(e)(1), Nov. 13, 1966,
80 Stat. 1565, related to income of certain nonresident United
States citizens subject to foreign community property laws.
-End-
-CITE-
26 USC Subpart I - Admissibility of Documentation
Maintained in Foreign Countries 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart I - Admissibility of Documentation Maintained in Foreign
Countries
-HEAD-
SUBPART I - ADMISSIBILITY OF DOCUMENTATION MAINTAINED IN FOREIGN
COUNTRIES
-MISC1-
Sec.
982. Admissibility of documentation maintained in foreign
countries.
AMENDMENTS
1982 - Pub. L. 97-248, title III, Sec. 337(a), Sept. 3, 1982, 96
Stat. 629, added subpart I and item 982.
-End-
-CITE-
26 USC Sec. 982 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart I - Admissibility of Documentation Maintained in Foreign
Countries
-HEAD-
Sec. 982. Admissibility of documentation maintained in foreign
countries
-STATUTE-
(a) General rule
If the taxpayer fails to substantially comply with any formal
document request arising out of the examination of the tax
treatment of any item (hereinafter in this section referred to as
the "examined item") before the 90th day after the date of the
mailing of such request on motion by the Secretary, any court
having jurisdiction of a civil proceeding in which the tax
treatment of the examined item is an issue shall prohibit the
introduction by the taxpayer of any foreign-based documentation
covered by such request.
(b) Reasonable cause exception
(1) In general
Subsection (a) shall not apply with respect to any
documentation if the taxpayer establishes that the failure to
provide the documentation as requested by the Secretary is due to
reasonable cause.
(2) Foreign nondisclosure law not reasonable cause
For purposes of paragraph (1), the fact that a foreign
jurisdiction would impose a civil or criminal penalty on the
taxpayer (or any other person) for disclosing the requested
documentation is not reasonable cause.
(c) Formal document request
For purposes of this section -
(1) Formal document request
The term "formal document request" means any request (made
after the normal request procedures have failed to produce the
requested documentation) for the production of foreign-based
documentation which is mailed by registered or certified mail to
the taxpayer at his last known address and which sets forth -
(A) the time and place for the production of the
documentation,
(B) a statement of the reason the documentation previously
produced (if any) is not sufficient,
(C) a description of the documentation being sought, and
(D) the consequences to the taxpayer of the failure to
produce the documentation described in subparagraph (C).
(2) Proceeding to quash
(A) In general
Notwithstanding any other law or rule of law, any person to
whom a formal document request is mailed shall have the right
to begin a proceeding to quash such request not later than the
90th day after the day such request was mailed. In any such
proceeding, the Secretary may seek to compel compliance with
such request.
(B) Jurisdiction
The United States district court for the district in which
the person (to whom the formal document request is mailed)
resides or is found shall have jurisdiction to hear any
proceeding brought under subparagraph (A). An order denying the
petition shall be deemed a final order which may be appealed.
(C) Suspension of 90-day period
The running of the 90-day period referred to in subsection
(a) shall be suspended during any period during which a
proceeding brought under subparagraph (A) is pending.
(d) Definitions and special rules
For purposes of this section -
(1) Foreign-based documentation
The term "foreign-based documentation" means any documentation
which is outside the United States and which may be relevant or
material to the tax treatment of the examined item.
(2) Documentation
The term "documentation" includes books and records.
(3) Authority to extend 90-day period
The Secretary, and any court having jurisdiction over a
proceeding under subsection (c)(2), may extend the 90-day period
referred to in subsection (a).
(e) Suspension of statute of limitations
If any person takes any action as provided in subsection (c)(2),
the running of any period of limitations under section 6501
(relating to the assessment and collection of tax) or under section
6531 (relating to criminal prosecutions) with respect to such
person shall be suspended for the period during which the
proceeding under such subsection, and appeals therein, are pending.
-SOURCE-
(Added Pub. L. 97-248, title III, Sec. 337(a), Sept. 3, 1982, 96
Stat. 629; amended Pub. L. 98-369, div. A, title VII, Sec. 714(k),
July 18, 1984, 98 Stat. 963.)
-MISC1-
AMENDMENTS
1984 - Subsec. (d)(3), (4). Pub. L. 98-369 redesignated par. (4)
as (3) and struck out former par. (3) which provided that an item
was to be treated as foreign connected if directly or indirectly
from a source outside the United States, or the item (in whole or
in part) purported to arise outside the United States, or was
otherwise dependent on transactions occurring outside the United
States.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in the
provision of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 715 of
Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE
Section 337(c) of Pub. L. 97-248, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [enacting this section] shall apply
with respect to formal document requests (as defined in section
982(c)(1) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954], as added by this section) mailed after the date of the
enactment of this Act [Sept. 3, 1982]."
-End-
-CITE-
26 USC Subpart J - Foreign Currency Transactions 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart J - Foreign Currency Transactions
-HEAD-
SUBPART J - FOREIGN CURRENCY TRANSACTIONS
-MISC1-
Sec.
985. Functional currency.
986. Determination of foreign taxes and foreign
corporation's earnings and profits.
987. Branch transactions.
988. Treatment of certain foreign currency transactions.
989. Other definitions and special rules.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Sec. 1012(v)(1)(C), Nov. 10,
1988, 102 Stat. 3529, added item 986 and struck out former item 986
"Determination of foreign corporation's earnings and profits and
foreign taxes".
-End-
-CITE-
26 USC Sec. 985 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart J - Foreign Currency Transactions
-HEAD-
Sec. 985. Functional currency
-STATUTE-
(a) In general
Unless otherwise provided in regulations, all determinations
under this subtitle shall be made in the taxpayer's functional
currency.
(b) Functional currency
(1) In general
For purposes of this subtitle, the term "functional currency"
means -
(A) except as provided in subparagraph (B), the dollar, or
(B) in the case of a qualified business unit, the currency of
the economic environment in which a significant part of such
unit's activities are conducted and which is used by such unit
in keeping its books and records.
(2) Functional currency where activities primarily conducted in
dollars
The functional currency of any qualified business unit shall be
the dollar if activities of such unit are primarily conducted in
dollars.
(3) Election
To the extent provided in regulations, the taxpayer may elect
to use the dollar as the functional currency for any qualified
business unit if -
(A) such unit keeps its books and records in dollars, or
(B) the taxpayer uses a method of accounting that
approximates a separate transactions method.
Any such election shall apply to the taxable year for which made
and all subsequent taxable years unless revoked with the consent
of the Secretary.
(4) Change in functional currency treated as a change in method
of accounting
Any change in the functional currency shall be treated as a
change in the taxpayer's method of accounting for purposes of
section 481 under procedures to be established by the Secretary.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1261(a), Oct. 22, 1986, 100
Stat. 2585.)
-MISC1-
EFFECTIVE DATE
Section 1261(e) of Pub. L. 99-514 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this subpart and amending
sections 1092 and 1256 of this title] shall apply to taxable years
beginning after December 31, 1986.
"(2) Special rules for purposes of sections 902 and 960. - For
purposes of applying sections 902 and 960 of the Internal Revenue
Code of 1986, the amendments made by this section shall apply to -
"(A) earnings and profits of the foreign corporation for
taxable years beginning after December 31, 1986, and
"(B) foreign taxes paid or accrued by the foreign corporation
with respect to such earnings and profits."
-End-
-CITE-
26 USC Sec. 986 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart J - Foreign Currency Transactions
-HEAD-
Sec. 986. Determination of foreign taxes and foreign corporation's
earnings and profits
-STATUTE-
(a) Foreign income taxes
(1) Translation of accrued taxes
(A) In general
For purposes of determining the amount of the foreign tax
credit, in the case of a taxpayer who takes foreign income
taxes into account when accrued, the amount of any foreign
income taxes (and any adjustment thereto) shall be translated
into dollars by using the average exchange rate for the taxable
year to which such taxes relate.
(B) Exception for certain taxes
Subparagraph (A) shall not apply to any foreign income taxes
-
(i) paid after the date 2 years after the close of the
taxable year to which such taxes relate, or
(ii) paid before the beginning of the taxable year to which
such taxes relate.
(C) Exception for inflationary currencies
Subparagraph (A) shall not apply to any foreign income taxes
the liability for which is denominated in any inflationary
currency (as determined under regulations).
(D) Cross reference
For adjustments where tax is not paid within 2 years, see
section 905(c).
(2) Translation of taxes to which paragraph (1) does not apply
For purposes of determining the amount of the foreign tax
credit, in the case of any foreign income taxes to which
subparagraph (A) of paragraph (1) does not apply -
(A) such taxes shall be translated into dollars using the
exchange rates as of the time such taxes were paid to the
foreign country or possession of the United States, and
(B) any adjustment to the amount of such taxes shall be
translated into dollars using -
(i) except as provided in clause (ii), the exchange rate as
of the time when such adjustment is paid to the foreign
country or possession, or
(ii) in the case of any refund or credit of foreign income
taxes, using the exchange rate as of the time of the original
payment of such foreign income taxes.
(3) Authority to permit use of average rates
To the extent prescribed in regulations, the average exchange
rate for the period (specified in such regulations) during which
the taxes or adjustment is paid may be used instead of the
exchange rate as of the time of such payment.
(4) Foreign income taxes
For purposes of this subsection, the term "foreign income
taxes" means any income, war profits, or excess profits taxes
paid or accrued to any foreign country or to any possession of
the United States.
(b) Earnings and profits and distributions
For purposes of determining the tax under this subtitle -
(1) of any shareholder of any foreign corporation, the earnings
and profits of such corporation shall be determined in the
corporation's functional currency, and
(2) in the case of any United States person, the earnings and
profits determined under paragraph (1) (when distributed, deemed
distributed, or otherwise taken into account under this subtitle)
shall (if necessary) be translated into dollars using the
appropriate exchange rate.
(c) Previously taxed earnings and profits
(1) In general
Foreign currency gain or loss with respect to distributions of
previously taxed earnings and profits (as described in section
959 or 1293(c)) attributable to movements in exchange rates
between the times of deemed and actual distribution shall be
recognized and treated as ordinary income or loss from the same
source as the associated income inclusion.
(2) Distributions through tiers
The Secretary shall prescribe regulations with respect to the
treatment of distributions of previously taxed earnings and
profits through tiers of foreign corporations.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1261(a), Oct. 22, 1986, 100
Stat. 2586; amended Pub. L. 100-647, title I, Sec. 1012(v)(1)(A),
Nov. 10, 1988, 102 Stat. 3528; Pub. L. 105-34, title XI, Sec.
1102(a)(1), (b)(1), Aug. 5, 1997, 111 Stat. 963, 965.)
-MISC1-
AMENDMENTS
1997 - Subsec. (a). Pub. L. 105-34, Sec. 1102(a)(1), amended
subsec. (a) generally. Prior to amendment, subsec. (a) read as
follows:
"(a) Foreign Taxes. -
"(1) In general. - For purposes of determining the amount of
the foreign tax credit -
"(A) any foreign income taxes shall be translated into
dollars using the exchange rates as of the time such taxes were
paid to the foreign country or possession of the United States,
and
"(B) any adjustment to the amount of foreign income taxes
shall be translated into dollars using -
"(i) except as provided in clause (ii), the exchange rate
as of the time when such adjustment is paid to the foreign
country or possession, or
"(ii) in the case of any refund or credit of foreign income
taxes, using the exchange rate as of the time of original
payment of such foreign income taxes.
"(2) Foreign income taxes. - For purposes of paragraph (1),
'foreign income taxes' means any income, war profits, or excess
profits taxes paid to any foreign country or to any possession of
the United States."
Subsec. (a)(3), (4). Pub. L. 105-34, Sec. 1102(b)(1), added par.
(3) and redesignated former par. (3) as (4).
1988 - Pub. L. 100-647 substituted "foreign taxes and foreign
corporation's earnings and profits" for "foreign corporation's
earnings and profits and foreign taxes" in heading, and revised and
restructured the provisions of subsecs. (a) and (b).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1102(c)(1) of Pub. L. 105-34 provided that: "The
amendments made by subsections (a)(1) and (b) [amending this
section and section 989 of this title] shall apply to taxes paid or
accrued in taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, with certain exceptions and qualifications, see section
1261(e) of Pub. L. 99-514, set out as a note under section 985 of
this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 902, 905 of this title.
-End-
-CITE-
26 USC Sec. 987 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart J - Foreign Currency Transactions
-HEAD-
Sec. 987. Branch transactions
-STATUTE-
In the case of any taxpayer having 1 or more qualified business
units with a functional currency other than the dollar, taxable
income of such taxpayer shall be determined -
(1) by computing the taxable income or loss separately for each
such unit in its functional currency,
(2) by translating the income or loss separately computed under
paragraph (1) at the appropriate exchange rate, and
(3) by making proper adjustments (as prescribed by the
Secretary) for transfers of property between qualified business
units of the taxpayer having different functional currencies,
including -
(A) treating post-1986 remittances from each such unit as
made on a pro rata basis out of post-1986 accumulated earnings,
and
(B) treating gain or loss determined under this paragraph as
ordinary income or loss, respectively, and sourcing such gain
or loss by reference to the source of the income giving rise to
post-1986 accumulated earnings.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1261(a), Oct. 22, 1986, 100
Stat. 2586; amended Pub. L. 100-647, title I, Sec. 1012(v)(1)(B),
Nov. 10, 1988, 102 Stat. 3528.)
-MISC1-
AMENDMENTS
1988 - Par. (4). Pub. L. 100-647 struck out par. (4) which
provided for translation of foreign income taxes paid by each
qualified business unit of the taxpayer in the same manner as
provided under section 986(b).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, with certain exceptions and qualifications, see section
1261(e) of Pub. L. 99-514, set out as a note under section 985 of
this title.
-End-
-CITE-
26 USC Sec. 988 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart J - Foreign Currency Transactions
-HEAD-
Sec. 988. Treatment of certain foreign currency transactions
-STATUTE-
(a) General rule
Notwithstanding any other provision of this chapter -
(1) Treatment as ordinary income or loss
(A) In general
Except as otherwise provided in this section, any foreign
currency gain or loss attributable to a section 988 transaction
shall be computed separately and treated as ordinary income or
loss (as the case may be).
(B) Special rule for forward contracts, etc.
Except as provided in regulations, a taxpayer may elect to
treat any foreign currency gain or loss attributable to a
forward contract, a futures contract, or option described in
subsection (c)(1)(B)(iii) which is a capital asset in the hands
of the taxpayer and which is not a part of a straddle (within
the meaning of section 1092(c), without regard to paragraph (4)
thereof) as capital gain or loss (as the case may be) if the
taxpayer makes such election and identifies such transaction
before the close of the day on which such transaction is
entered into (or such earlier time as the Secretary may
prescribe).
(2) Gain or loss treated as interest for certain purposes
To the extent provided in regulations, any amount treated as
ordinary income or loss under paragraph (1) shall be treated as
interest income or expense (as the case may be).
(3) Source
(A) In general
Except as otherwise provided in regulations, in the case of
any amount treated as ordinary income or loss under paragraph
(1) (without regard to paragraph (1)(B)), the source of such
amount shall be determined by reference to the residence of the
taxpayer or the qualified business unit of the taxpayer on
whose books the asset, liability, or item of income or expense
is properly reflected.
(B) Residence
For purposes of this subpart -
(i) In general
The residence of any person shall be -
(I) in the case of an individual, the country in which
such individual's tax home (as defined in section
911(d)(3)) is located,
(II) in the case of any corporation, partnership, trust,
or estate which is a United States person (as defined in
section 7701(a)(30)), the United States, and
(III) in the case of any corporation, partnership, trust,
or estate which is not a United States person, a country
other than the United States.
If an individual does not have a tax home (as so defined),
the residence of such individual shall be the United States
if such individual is a United States citizen or a resident
alien and shall be a country other than the United States if
such individual is not a United States citizen or a resident
alien.
(ii) Exception
In the case of a qualified business unit of any taxpayer
(including an individual), the residence of such unit shall
be the country in which the principal place of business of
such qualified business unit is located.
(iii) Special rule for partnerships
To the extent provided in regulations, in the case of a
partnership, the determination of residence shall be made at
the partner level.
(C) Special rule for certain related party loans
Except to the extent provided in regulations, in the case of
a loan by a United States person or a related person to a
10-percent owned foreign corporation which is denominated in a
currency other than the dollar and bears interest at a rate at
least 10 percentage points higher than the Federal mid-term
rate (determined under section 1274(d)) at the time such loan
is entered into, the following rules shall apply:
(i) For purposes of section 904 only, such loan shall be
marked to market on an annual basis.
(ii) Any interest income earned with respect to such loan
for the taxable year shall be treated as income from sources
within the United States to the extent of any loss
attributable to clause (i).
For purposes of this subparagraph, the term "related person"
has the meaning given such term by section 954(d)(3), except
that such section shall be applied by substituting "United
States person" for "controlled foreign corporation" each place
such term appears.
(D) 10-percent owned foreign corporation
The term "10-percent owned foreign corporation" means any
foreign corporation in which the United States person owns
directly or indirectly at least 10 percent of the voting stock.
(b) Foreign currency gain or loss
For purposes of this section -
(1) Foreign currency gain
The term "foreign currency gain" means any gain from a section
988 transaction to the extent such gain does not exceed gain
realized by reason of changes in exchange rates on or after the
booking date and before the payment date.
(2) Foreign currency loss
The term "foreign currency loss" means any loss from a section
988 transaction to the extent such loss does not exceed the loss
realized by reason of changes in exchange rates on or after the
booking date and before the payment date.
(3) Special rule for certain contracts, etc.
In the case of any section 988 transaction described in
subsection (c)(1)(B)(iii), any gain or loss from such transaction
shall be treated as foreign currency gain or loss (as the case
may be).
(c) Other definitions
For purposes of this section -
(1) Section 988 transaction
(A) In general
The term "section 988 transaction" means any transaction
described in subparagraph (B) if the amount which the taxpayer
is entitled to receive (or is required to pay) by reason of
such transaction -
(i) is denominated in terms of a nonfunctional currency, or
(ii) is determined by reference to the value of 1 or more
nonfunctional currencies.
(B) Description of transactions
For purposes of subparagraph (A), the following transactions
are described in this subparagraph:
(i) The acquisition of a debt instrument or becoming the
obligor under a debt instrument.
(ii) Accruing (or otherwise taking into account) for
purposes of this subtitle any item of expense or gross income
or receipts which is to be paid or received after the date on
which so accrued or taken into account.
(iii) Entering into or acquiring any forward contract,
futures contract, option, or similar financial instrument.
The Secretary may prescribe regulations excluding from the
application of clause (ii) any class of items the taking into
account of which is not necessary to carry out the purposes of
this section by reason of the small amounts or short periods
involved, or otherwise.
(C) Special rules for disposition of nonfunctional currency
(i) In general
In the case of any disposition of any nonfunctional
currency -
(I) such disposition shall be treated as a section 988
transaction, and
(II) any gain or loss from such transaction shall be
treated as foreign currency gain or loss (as the case may
be).
(ii) Nonfunctional currency
For purposes of this section, the term "nonfunctional
currency" includes coin or currency, and nonfunctional
currency denominated demand or time deposits or similar
instruments issued by a bank or other financial institution.
(D) Exception for certain instruments marked to market
(i) In general
Clause (iii) of subparagraph (B) shall not apply to any
regulated futures contract or nonequity option which would be
marked to market under section 1256 if held on the last day
of the taxable year.
(ii) Election out
(I) In general
The taxpayer may elect to have clause (i) not apply to
such taxpayer. Such an election shall apply to contracts
held at any time during the taxable year for which such
election is made or any succeeding taxable year unless such
election is revoked with the consent of the Secretary.
(II) Time for making election
Except as provided in regulations, an election under
subclause (I) for any taxable year shall be made on or
before the 1st day of such taxable year (or, if later, on
or before the 1st day during such year on which the
taxpayer holds a contract described in clause (i)).
(III) Special rule for partnerships, etc.
In the case of a partnership, an election under subclause
(I) shall be made by each partner separately. A similar
rule shall apply in the case of an S corporation.
(iii) Treatment of certain partnerships
This subparagraph shall not apply to any income or loss of
a partnership for any taxable year if such partnership made
an election under subparagraph (E)(iii)(V) for such year or
any preceding year.
(E) Special rules for certain funds
(i) In general
In the case of a qualified fund, clause (iii) of
subparagraph (B) shall not apply to any instrument which
would be marked to market under section 1256 if held on the
last day of the taxable year (determined after the
application of clause (iv)).
(ii) Special rule where electing partnership does not qualify
If any partnership made an election under clause (iii)(V)
for any taxable year and such partnership has a net loss for
such year or any succeeding year from instruments referred to
in clause (i), the rules of clauses (i) and (iv) shall apply
to any such loss year whether or not such partnership is a
qualified fund for such year.
(iii) Qualified fund defined
For purposes of this subparagraph, the term "qualified
fund" means any partnership if -
(I) at all times during the taxable year (and during each
preceding taxable year to which an election under subclause
(V) applied), such partnership has at least 20 partners and
no single partner owns more than 20 percent of the
interests in the capital or profits of the partnership,
(II) the principal activity of such partnership for such
taxable year (and each such preceding taxable year)
consists of buying and selling options, futures, or
forwards with respect to commodities,
(III) at least 90 percent of the gross income of the
partnership for the taxable year (and for each such
preceding taxable year) consisted of income or gains
described in subparagraph (A), (B), or (G) of section
7704(d)(1) or gain from the sale or disposition of capital
assets held for the production of interest or dividends,
(IV) no more than a de minimis amount of the gross income
of the partnership for the taxable year (and each such
preceding taxable year) was derived from buying and selling
commodities, and
(V) an election under this subclause applies to the
taxable year.
An election under subclause (V) for any taxable year shall be
made on or before the 1st day of such taxable year (or, if
later, on or before the 1st day during such year on which the
partnership holds an instrument referred to in clause (i)).
Any such election shall apply to the taxable year for which
made and all succeeding taxable years unless revoked with the
consent of the Secretary.
(iv) Treatment of certain currency contracts
(I) In general
Except as provided in regulations, in the case of a
qualified fund, any bank forward contract, any foreign
currency futures contract traded on a foreign exchange, or
to the extent provided in regulations any similar
instrument, which is not otherwise a section 1256 contract
shall be treated as a section 1256 contract for purposes of
section 1256.
(II) Gains and losses treated as short-term
In the case of any instrument treated as a section 1256
contract under subclause (I), subparagraph (A) of section
1256(a)(3) shall be applied by substituting "100 percent"
for "40 percent" (and subparagraph (B) of such section
shall not apply).
(v) Special rules for clause (iii)(I)
(I) Certain general partners
The interest of a general partner in the partnership
shall not be treated as failing to meet the 20-percent
ownership requirements of clause (iii)(I) for any taxable
year of the partnership if, for the taxable year of the
partner in which such partnership taxable year ends, such
partner (and each corporation filing a consolidated return
with such partner) had no ordinary income or loss from a
section 988 transaction which is foreign currency gain or
loss (as the case may be).
(II) Treatment of incentive compensation
For purposes of clause (iii)(I), any income allocable to
a general partner as incentive compensation based on
profits rather than capital shall not be taken into account
in determining such partner's interest in the profits of
the partnership.
(III) Treatment of tax-exempt partners
Except as provided in regulations, the interest of a
partner in the partnership shall not be treated as failing
to meet the 20-percent ownership requirements of clause
(iii)(I) if none of the income of such partner from such
partnership is subject to tax under this chapter (whether
directly or through 1 or more pass-thru entities).
(IV) Look-thru rule
In determining whether the requirements of clause
(iii)(I) are met with respect to any partnership, except to
the extent provided in regulations, any interest in such
partnership held by another partnership shall be treated as
held proportionately by the partners in such other
partnership.
(vi) Other special rules
For purposes of this subparagraph -
(I) Related persons
Interests in the partnership held by persons related to
each other (within the meaning of sections 267(b) and
707(b)) shall be treated as held by 1 person.
(II) Predecessors
References to any partnership shall include a reference
to any predecessor thereof.
(III) Inadvertent terminations
Rules similar to the rules of section 7704(e) shall
apply.
(IV) Treatment of certain debt instruments
For purposes of clause (iii)(IV), any debt instrument
which is a section 988 transaction shall be treated as a
commodity.
(2) Booking date
The term "booking date" means -
(A) in the case of a transaction described in paragraph
(1)(B)(i), the date of acquisition or on which the taxpayer
becomes the obligor, or
(B) in the case of a transaction described in paragraph
(1)(B)(ii), the date on which accrued or otherwise taken into
account.
(3) Payment date
The term "payment date" means the date on which the payment is
made or received.
(4) Debt instrument
The term "debt instrument" means a bond, debenture, note, or
certificate or other evidence of indebtedness. To the extent
provided in regulations, such term shall include preferred stock.
(5) Special rules where taxpayer takes or makes delivery
If the taxpayer takes or makes delivery in connection with any
section 988 transaction described in paragraph (1)(B)(iii), any
gain or loss (determined as if the taxpayer sold the contract,
option, or instrument on the date on which he took or made
delivery for its fair market value on such date) shall be
recognized in the same manner as if such contract, option, or
instrument were so sold.
(d) Treatment of 988 hedging transactions
(1) In general
To the extent provided in regulations, if any section 988
transaction is part of a 988 hedging transaction, all
transactions which are part of such 988 hedging transaction shall
be integrated and treated as a single transaction or otherwise
treated consistently for purposes of this subtitle. For purposes
of the preceding sentence, the determination of whether any
transaction is a section 988 transaction shall be determined
without regard to whether such transaction would otherwise be
marked-to-market under section 475 or 1256 and such term shall
not include any transaction with respect to which an election is
made under subsection (a)(1)(B). Sections 475, 1092, and 1256
shall not apply to a transaction covered by this subsection.
(2) 988 hedging transaction
For purposes of paragraph (1), the term "988 hedging
transaction" means any transaction -
(A) entered into by the taxpayer primarily -
(i) to manage risk of currency fluctuations with respect to
property which is held or to be held by the taxpayer, or
(ii) to manage risk of currency fluctuations with respect
to borrowings made or to be made, or obligations incurred or
to be incurred, by the taxpayer, and
(B) identified by the Secretary or the taxpayer as being a
988 hedging transaction.
(e) Application to individuals
(1) In general
The preceding provisions of this section shall not apply to any
section 988 transaction entered into by an individual which is a
personal transaction.
(2) Exclusion for certain personal transactions
If -
(A) nonfunctional currency is disposed of by an individual in
any transaction, and
(B) such transaction is a personal transaction,
no gain shall be recognized for purposes of this subtitle by
reason of changes in exchange rates after such currency was
acquired by such individual and before such disposition. The
preceding sentence shall not apply if the gain which would
otherwise be recognized on the transaction exceeds $200.
(3) Personal transactions
For purposes of this subsection, the term "personal
transaction" means any transaction entered into by an individual,
except that such term shall not include any transaction to the
extent that expenses properly allocable to such transaction meet
the requirements of -
(A) section 162 (other than traveling expenses described in
subsection (a)(2) thereof), or
(B) section 212 (other than that part of section 212 dealing
with expenses incurred in connection with taxes).
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1261(a), Oct. 22, 1986, 100
Stat. 2587; amended Pub. L. 100-647, title I, Sec. 1012(v)(2)(A),
(3), (4), (6)-(8), title VI, Sec. 6130(a), (b), Nov. 10, 1988, 102
Stat. 3529, 3530, 3717; Pub. L. 101-239, title VII, Sec.
7811(i)(7), Dec. 19, 1989, 103 Stat. 2410; Pub. L. 103-66, title
XIII, Sec. 13223(b)(1), Aug. 10, 1993, 107 Stat. 484; Pub. L.
105-34, title XI, Sec. 1104(a), Aug. 5, 1997, 111 Stat. 967; Pub.
L. 106-170, title V, Sec. 532(b)(3), Dec. 17, 1999, 113 Stat.
1930.)
-MISC1-
AMENDMENTS
1999 - Subsec. (d)(2)(A)(i), (ii). Pub. L. 106-170 substituted
"to manage" for "to reduce".
1997 - Subsec. (e). Pub. L. 105-34 amended heading and text of
subsec. (e) generally. Prior to amendment, text read as follows:
"This section shall apply to section 988 transactions entered into
by an individual only to the extent expenses properly allocable to
such transactions meet the requirements of section 162 or 212
(other than that part of section 212 dealing with expenses incurred
in connection with taxes)."
1993 - Subsec. (d)(1). Pub. L. 103-66 substituted "section 475 or
1256" for "section 1256" and "Sections 475, 1092, and 1256" for
"Sections 1092 and 1256".
1989 - Subsec. (a). Pub. L. 101-239 inserted introductory
provision "Notwithstanding any other provision of this chapter - ".
1988 - Subsec. (a)(3)(B)(i). Pub. L. 100-647, Sec. 1012(v)(8),
inserted at end "If an individual does not have a tax home (as so
defined), the residence of such individual shall be the United
States if such individual is a United States citizen or a resident
alien and shall be a country other than the United States if such
individual is not a United States citizen or a resident alien."
Subsec. (a)(3)(B)(iii). Pub. L. 100-647, Sec. 1012(v)(7), added
cl. (iii).
Subsec. (b)(3). Pub. L. 100-647, Sec. 1012(v)(3)(A), added par.
(3).
Subsec. (c)(1)(B)(iii). Pub. L. 100-647, Sec. 6130(a), struck out
"unless such instrument would be marked to market under section
1256 if held on the last day of the taxable year" after "similar
financial instrument".
Pub. L. 100-647, Sec. 1012(v)(6), amended cl. (iii) generally.
Prior to amendment, cl. (iii) read as follows: "Entering into or
acquiring any forward contract, futures contract, option, or
similar financial instrument if such instrument is not marked to
market at the close of the taxable year under section 1256."
Subsec. (c)(1)(C)(i)(II). Pub. L. 100-647, Sec. 1012(v)(3)(B),
amended subcl. (II) generally. Prior to amendment, subcl. (II) read
as follows: "for purposes of determining the foreign currency gain
or loss from such transaction, paragraphs (1) and (2) of subsection
(b) shall be applied by substituting 'acquisition date' for
'booking date' and 'disposition' for 'payment date'."
Subsec. (c)(1)(D), (E). Pub. L. 100-647, Sec. 6130(b), added
subpars. (D) and (E).
Subsec. (c)(2)(C). Pub. L. 100-647, Sec. 1012(v)(3)(C), struck
out subpar. (C) which defined "booking date" in the case of a
transaction described in par. (1)(B)(iii) as the date on which the
position is entered into or acquired.
Subsec. (c)(3). Pub. L. 100-647, Sec. 1012(v)(3)(D), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "The
term 'payment date' means -
"(A) in the case of a transaction described in paragraph
(1)(B)(i) or (ii), the date on which payment is made or received,
or
"(B) in the case of a transaction described in paragraph
(1)(B)(iii), the date payment is made or received or the date the
taxpayer's rights with respect to the position are terminated."
Subsec. (c)(5). Pub. L. 100-647, Sec. 1012(v)(2)(A), added par.
(5).
Subsec. (d)(1). Pub. L. 100-647, Sec. 1012(v)(4), substituted
"this subtitle" for "this section".
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1104(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1997."
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to all taxable years
ending on or after Dec. 31, 1993, with special rules for taxpayers
required to change accounting methods and for floor specialists and
market makers, see section 13223(c) of Pub. L. 103-66, set out as
an Effective Date note under section 475 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
Section 1012(v)(2)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
not apply in any case in which the taxpayer takes or makes delivery
before June 11, 1987."
Amendment by section 1012(v)(3), (4), (6)-(8) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6130(d) of Pub. L. 100-647 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 1092 of this title] shall apply with
respect to forward contracts, future contracts, options, and
similar instruments entered into or acquired after October 21,
1988.
"(2) Time for making election. - The time for making any election
under subparagraph (D) or (E) of section 988(c)(1) of the 1986 Code
shall not expire before the date 30 days after the date of the
enactment of this Act [Nov. 10, 1988].
"(3) Transitional rules. -
"(A) The requirements of subclause (IV) of section
988(c)(1)(E)(iii) of the 1986 Code (as added by subsection (b))
shall not apply to periods before the date of the enactment of
this Act.
"(B) In the case of any partner in an existing partnership, the
20-percent ownership requirements of subclause (I) of such
section 988(c)(1)(E)(iii) shall be treated as met during any
period during which such partner does not own a percentage
interest in the capital or profits of such partnership greater
than 33 1/3 percent (or, if lower, the lowest such percentage
interest of such partner during any prior period after October
21, 1988, during which such partnership is in existence). For
purposes of the preceding sentence, the term 'existing
partnership' means any partnership if -
"(i) such partnership was in existence on October 21, 1988,
and principally engaged on such date in buying and selling
options, futures, or forwards with respect to commodities, or
"(ii) a registration statement was filed with respect to such
partnership with the Securities and Exchange Commission on or
before such date and such registration statement indicated that
the principal activity of such partnership will consist of
buying and selling instruments referred to in clause (i)."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, with certain exceptions and qualifications, see section
1261(e) of Pub. L. 99-514, set out as a note under section 985 of
this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 865, 954, 4982 of this
title.
-End-
-CITE-
26 USC Sec. 989 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart J - Foreign Currency Transactions
-HEAD-
Sec. 989. Other definitions and special rules
-STATUTE-
(a) Qualified business unit
For purposes of this subpart, the term "qualified business unit"
means any separate and clearly identified unit of a trade or
business of a taxpayer which maintains separate books and records.
(b) Appropriate exchange rate
Except as provided in regulations, for purposes of this subpart,
the term "appropriate exchange rate" means -
(1) in the case of an actual distribution of earnings and
profits, the spot rate on the date such distribution is included
in income,
(2) in the case of an actual or deemed sale or exchange of
stock in a foreign corporation treated as a dividend under
section 1248, the spot rate on the date the deemed dividend is
included in income,
(3) in the case of any amounts included in income under section
951(a)(1)(A), 551(a), or 1293(a), the average exchange rate for
the taxable year of the foreign corporation, or
(4) in the case of any other qualified business unit of a
taxpayer, the average exchange rate for the taxable year of such
qualified business unit.
For purposes of the preceding sentence, any amount included in
income under section 951(a)(1)(B) shall be treated as an actual
distribution made on the last day of the taxable year for which
such amount was so included.
(c) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this subpart,
including regulations -
(1) setting forth procedures to be followed by taxpayers with
qualified business units using a net worth method of accounting
before the enactment of this subpart,
(2) limiting the recognition of foreign currency loss on
certain remittances from qualified business units,
(3) providing for the recharacterization of interest and
principal payments with respect to obligations denominated in
certain hyperinflationary currencies,
(4) providing for alternative adjustments to the application of
section 905(c),
(5) providing for the appropriate treatment of related party
transactions (including transactions between qualified business
units of the same taxpayer), and
(6) setting forth procedures for determining the average
exchange rate for any period.
-SOURCE-
(Added Pub. L. 99-514, title XII, Sec. 1261(a), Oct. 22, 1986, 100
Stat. 2590; amended Pub. L. 100-647, title I, Sec. 1012(v)(5), Nov.
10, 1988, 102 Stat. 3529; Pub. L. 103-66, title XIII, Sec.
13231(c)(4)(C), Aug. 10, 1993, 107 Stat. 499; Pub. L. 104-188,
title I, Sec. 1501(b)(9), Aug. 20, 1996, 110 Stat. 1826; Pub. L.
105-34, title XI, Sec. 1102(b)(2), (3), Aug. 5, 1997, 111 Stat.
966.)
-REFTEXT-
REFERENCES IN TEXT
The enactment of this subpart, referred to in subsec. (c)(1),
probably means the date of enactment of Pub. L. 99-514, which was
approved Oct. 22, 1986.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(3), (4). Pub. L. 105-34, Sec. 1102(b)(3),
struck out "weighted" before "average exchange rate".
Subsec. (c)(6). Pub. L. 105-34, Sec. 1102(b)(2), added par. (6).
1996 - Subsec. (b). Pub. L. 104-188 substituted "section
951(a)(1)(B)" for "subparagraph (B) or (C) of section 951(a)(1)" in
closing provisions.
1993 - Subsec. (b). Pub. L. 103-66 substituted "subparagraph (B)
or (C) of section 951(a)(1)" for "section 951(a)(1)(B)" in last
sentence.
1988 - Subsec. (b). Pub. L. 100-647 substituted in par. (3)
"section 951(a)(1)(A)" for "section 951(a)" and inserted at end
"For purposes of the preceding sentence, any amount included in
income under section 951(a)(1)(B) shall be treated as an actual
distribution made on the last day of the taxable year for which
such amount was so included."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxes paid or accrued
in taxable years beginning after Dec. 31, 1997, see section
1102(c)(1) of Pub. L. 105-34, set out as a note under section 986
of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years of
foreign corporations beginning after Dec. 31, 1996, and to taxable
years of United States shareholders within which or with which such
taxable years of foreign corporations end, see section 1501(d) of
Pub. L. 104-188, set out as a note under section 904 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years of
foreign corporations beginning after Sept. 30, 1993, and to taxable
years of United States shareholders in which or with which such
taxable years of foreign corporations end, see section 13231(e) of
Pub. L. 103-66, set out as a note under section 951 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1986, with certain exceptions and qualifications, see section
1261(e) of Pub. L. 99-514, set out as a note under section 985 of
this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 953, 954 of this title.
-End-
-CITE-
26 USC PART IV - DOMESTIC INTERNATIONAL SALES
CORPORATIONS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
-HEAD-
PART IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
-MISC1-
Subpart Sec.(!1)
A. Treatment of qualifying corporations 991
B. Treatment of distributions to shareholders 995
AMENDMENTS
1971 - Pub. L. 92-178, title V, Sec. 501, Dec. 10, 1971, 85 Stat.
535, added part IV to subchapter N of chapter 1.
-FOOTNOTE-
(!1) Section numbers editorially supplied.
-End-
-CITE-
26 USC Subpart A - Treatment of Qualifying Corporations 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter N - Tax Based on Income From Sources Within or Without
the United States
PART IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
Subpart A - Treatment of Qualifying Corporations
-HEAD-
SUBPART A - TREATMENT OF QUALIFYING CORPORATIONS
-MISC1-
Sec.
991. Taxation of a domestic international sales
corporation.
992. Requirements of a domestic international sales
corporation.
993. Definitions and special rules.(!1)
994. Inter-company pricing rules.
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 991 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 IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
Subpart A - Treatment of Qualifying Corporations
-HEAD-
Sec. 991. Taxation of a domestic international sales corporation
-STATUTE-
For purposes of the taxes imposed by this subtitle upon a DISC
(as defined in section 992(a)), a DISC shall not be subject to the
taxes imposed by this subtitle.
-SOURCE-
(Added Pub. L. 92-178, title V, Sec. 501, Dec. 10, 1971, 85 Stat.
535; amended Pub. L. 105-206, title VI, Sec. 6011(e)(1), July 22,
1998, 112 Stat. 818.)
-MISC1-
AMENDMENTS
1998 - Pub. L. 105-206 struck out "except for the tax imposed by
chapter 5" before period at end.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates
(section 1131(a) of Pub. L. 105-34), see section 6024 of Pub. L.
105-206, set out as a note under section 1 of this title.
EFFECTIVE DATE
Section 507 of title V of Pub. L. 92-178, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"Except as provided in section 505 of this title [amending section
971 of this title and enacting provisions set out as a note under
section 970 of this title], the amendments made by sections 501
through 504 of this title [enacting this section and sections 992
to 994, 995 to 997, and 6686 of this title and amending sections
246, 861, 901, 904, 922, 931, 1014, 1504, 6011, 6072, and 6501 of
this title] shall apply with respect to taxable years ending after
December 31, 1971, except that a corporation may not be a DISC (as
defined in section 992(a) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], added by section 501 of this title) for any
taxable year beginning before January 1, 1972."
TRANSITION RULES FOR DISC'S
Pub. L. 98-369, div. A, title VIII, Sec. 805(b), July 18, 1984,
98 Stat. 1001, as amended by Pub. L. 99-514, Sec. 2, title XVIII,
Sec. 1876(h), (n), Oct. 22, 1986, 100 Stat. 2095, 2900, 2901,
provided that:
"(1) Close of 1984 taxable years of disc's. -
"(A) In general. - For purposes of applying the Internal
Revenue Code of 1986 [formerly I.R.C. 1954], the taxable year of
each DISC which begins before January 1, 1985, and which (but for
this paragraph) would include January 1, 1985, shall close on
December 31, 1984. For purposes of such Code, the requirements of
section 992(a)(1)(B) of such Code (relating to percentage of
qualified export assets on last day of the taxable year) shall
not apply to any taxable year ending on December 31, 1984.
"(B) Underpayments of estimated tax. - To the extent provided
in regulations prescribed by the Secretary of the Treasury or his
delegate, no addition to tax shall be made under section 6654 or
6655 of such Code with respect to any underpayment of any
installment required to be paid before April 13, 1985, to the
extent the underpayment was created or increased by reason of
subparagraph (A).
"(2) Exemption of accumulated disc income from tax. -
"(A) In general. - For purposes of applying the Internal
Revenue Code of 1986 with respect to actual distributions made
after December 31, 1984, by a DISC or former DISC which was a
DISC on December 31, 1984, any accumulated DISC income of a DISC
or former DISC (within the meaning of section 996(f)(1) of such
Code) which is derived before January 1, 1985, shall be treated
as previously taxed income (within the meaning of section
996(f)(2) of such Code) with respect to which there had
previously been a deemed distribution to which section 996(e)(1)
of such Code applied. For purposes of the preceding sentence, the
term 'actual distribution' includes a distribution in
liquidation, and the earnings and profits of any corporation
receiving a distribution not included in gross income by reason
of the preceding sentence shall be increased by the amount of
such distribution.
"(B) Exception for distribution of amounts previously
disqualified. - Subparagraph (A) shall not apply to the
distribution of any accumulated DISC income of a DISC or former
DISC to which section 995(b)(2) of such Code applied by reason of
any revocation or disqualification (other than a revocation which
under regulations prescribed by the Secretary results solely from
the provisions of this title [title VIII, Secs. 801-805, of Pub.
L. 98-369, see Effective Date of 1984 Amendment note set out
under section 245 of this title].
"(C) Treatment of distribution of accumulated disc income
received by cooperatives. - In the case of any actual
distribution received by an organization described in section
1381 of such Code and excluded from the gross income of such
corporation by reason of subparagraph (A) -
"(i) such amount shall not be included in the gross income of
any member of such organization when distributed in the form of
a patronage dividend or otherwise, and
"(ii) no deduction shall be allowed to such organization by
reason of any such distribution.
"(3) Installment treatment of certain deemed distributions of
shareholders. -
"(A) In general. - Notwithstanding section 995(b) of such Code,
if a shareholder of a DISC elects the application of this
paragraph, any qualified distribution shall be treated, for
purposes of such Code, as received by such shareholder in 10
equal installments on the last day of each of the 10 taxable
years of such shareholder which begins after the first taxable
year of such shareholder beginning in 1984. The preceding
sentence shall apply without regard to whether the DISC exists
after December 31, 1984.
"(B) Qualified distribution. - The term 'qualified
distribution' means any distribution which a shareholder is
deemed to have received by reason of section 995(b) of such Code
with respect to income derived by the DISC in the first taxable
year of the DISC beginning -
"(i) in 1984, and
"(ii) after the date in 1984 on which the taxable year of
such shareholder begins.
"(C) Shorter period for installments. - The Secretary of the
Treasury or his delegate may by regulations provide for the
election by any shareholder to be treated as receiving a
qualified distribution over such shorter period as the taxpayer
may elect.
"(D) Elections. - Any election under this paragraph shall be
made at such time and in such manner as the Secretary of the
Treasury or his delegate may prescribe.
"(4) Treatment of transfers from disc to fsc. - Except to the
extent provided in regulations, section 367 of such Code shall not
apply to transfers made before January 1, 1986 (or, if later, the
date 1 year after the date on which the corporation ceases to be a
DISC), to a FSC of qualified export assets (as defined in section
993(b) of such Code) held on August 4, 1983, by a DISC in a
transaction described in section 351 or 368(a)(1) of such Code.
"(5) Deemed termination of a disc. - Under regulations prescribed
by the Secretary, if any controlled group of corporations of which
a DISC is a member establishes a FSC, then any DISC which is a
member of such group shall be treated as having terminated its DISC
status.
"(6) Definitions. - For purposes of this subsection, the terms
'DISC' and 'former DISC' have the respective meanings given to such
terms by section 992 of such Code."
SPECIAL RULE FOR EXPORT TRADE CORPORATIONS
Pub. L. 98-369, div. A, title VIII, Sec. 805(c), July 18, 1984,
98 Stat. 1002, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986,
100 Stat. 2095, provided that:
"(1) In general. - If, before January 1, 1985, any export trade
corporation -
"(A) makes an election under [former] section 927(f)(1) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] to be
treated as a FSC, or
"(B) elects not to be treated as an export trade corporation
with respect to taxable years beginning after December 31, 1984,
rules similar to the rules of paragraphs (2) and (4) of subsection
(b) [section 805(b)(2) and (4) of Pub. L. 98-369, set out as a note
above] shall apply to such export trade corporation.
"(2) Treatment of transfers to fsc. - In the case of any export
trade corporation which -
"(A) makes an election described in paragraph (1), and
"(B) transfers before January 1, 1986, any portion of its
property to a FSC in a transaction described in section 351 or
368(a)(1),
then, subject to such rules as the Secretary of the Treasury or his
delegate may prescribe based on principles similar to the
principles of section 505(a) and (b) of the Revenue Act of 1971
[Pub. L. 92-178, set out as a note under section 970 of this
title], no income, gain, or loss shall be recognized on such
transfer or on the distribution of any stock of the FSC received
(or treated as received) in connection with such transfer.
"(3) Export trade corporation. - For purposes of this subsection,
the term 'export trade corporation' has the meaning given such term
by section 971 of the Internal Revenue Code of 1986."
SUBMISSION OF ANNUAL REPORTS TO CONGRESS
Section 506 of Pub. L. 92-178, which directed, that commencing
with calendar year 1972, the Secretary of the Treasury submit
annual reports to Congress on the effect and operation of title V,
Secs. 501-507, of Pub. L. 92-178, was probably intended by Congress
to be repealed by Pub. L. 98-369, div. A, title VIII, Sec.
804(b)(1), July 18, 1984, 98 Stat. 1000, which directed that
section 806 of Pub. L. 98-178 relating to submission of annual
reports to Congress be repealed. Section 804(b)(2) of Pub. L.
98-369 provided that the repeal is applicable to reports for
calendar years after 1984.
-End-
-CITE-
26 USC Sec. 992 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 IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
Subpart A - Treatment of Qualifying Corporations
-HEAD-
Sec. 992. Requirements of a domestic international sales
corporation
-STATUTE-
(a) Definition of "DISC" and "former DISC"
(1) DISC
For purposes of this title, the term "DISC" means, with respect
to any taxable year, a corporation which is incorporated under
the laws of any State and satisfies the following conditions for
the taxable year:
(A) 95 percent or more of the gross receipts (as defined in
section 993(f)) of such corporation consist of qualified export
receipts (as defined in section 993(a)),
(B) the adjusted basis of the qualified export assets (as
defined in section 993(b)) of the corporation at the close of
the taxable year equals or exceeds 95 percent of the sum of the
adjusted basis of all assets of the corporation at the close of
the taxable year,
(C) such corporation does not have more than one class of
stock and the par or stated value of its outstanding stock is
at least $2,500 on each day of the taxable year,
(D) the corporation has made an election pursuant to
subsection (b) to be treated as a DISC and such election is in
effect for the taxable year, and
(E) such corporation is not a member of any controlled group
of which a FSC is a member.
(2) Status as DISC after having filed a return as a DISC
The Secretary shall prescribe regulations setting forth the
conditions under and the extent to which a corporation which has
filed a return as a DISC for a taxable year shall be treated as a
DISC for such taxable year for all purposes of this title,
notwithstanding the fact that the corporation has failed to
satisfy the conditions of paragraph (1).
(3) "Former DISC"
For purposes of this title, the term "former DISC" means, with
respect to any taxable year, a corporation which is not a DISC
for such year but was a DISC in a preceding taxable year and at
the beginning of the taxable year has undistributed previously
taxed income or accumulated DISC income.
(b) Election
(1) Election
(A) An election by a corporation to be treated as a DISC shall
be made by such corporation for a taxable year at any time during
the 90-day period immediately preceding the beginning of the
taxable year, except that the Secretary may give his consent to
the making of an election at such other times as he may
designate.
(B) Such election shall be made in such manner as the Secretary
shall prescribe and shall be valid only if all persons who are
shareholders in such corporation on the first day of the first
taxable year for which such election is effective consent to such
election.
(2) Effect of election
If a corporation makes an election under paragraph (1), then
the provisions of this part shall apply to such corporation for
the taxable year of the corporation for which made and for all
succeeding taxable years and shall apply to each person who at
any time is a shareholder of such corporation for all periods on
or after the first day of the first taxable year of the
corporation for which the election is effective.
(3) Termination of election
(A) Revocation
An election under this subsection made by any corporation may
be terminated by revocation of such election for any taxable
year of the corporation after the first taxable year of the
corporation for which the election is effective. A termination
under this paragraph shall be effective with respect to such
election -
(i) for the taxable year in which made, if made at any time
during the first 90 days of such taxable year, or
(ii) for the taxable year following the taxable year in
which made, if made after the close of such 90 days,
and for all succeeding taxable years of the corporation. Such
termination shall be made in such manner as the Secretary shall
prescribe by regulations.
(B) Continued failure to be DISC
If a corporation is not a DISC for each of any 5 consecutive
taxable years of the corporation for which an election under
this subsection is effective, the election shall be terminated
and not be in effect for any taxable year of the corporation
after such 5th year.
(c) Distributions to meet qualification requirements
(1) In general
Subject to the conditions provided by paragraph (2), a
corporation which for a taxable year does not satisfy a condition
specified in paragraph (1)(A) (relating to gross receipts) or
(1)(B) (relating to assets) of subsection (a) shall nevertheless
be deemed to satisfy such condition for such year if it makes a
pro rata distribution of property after the close of the taxable
year to its shareholders (designated at the time of such
distribution as a distribution to meet qualification
requirements) with respect to their stock in an amount which is
equal to -
(A) if the condition of subsection (a)(1)(A) is not
satisfied, the portion of such corporation's taxable income
attributable to its gross receipts which are not qualified
export receipts for such year,
(B) if the condition of subsection (a)(1)(B) is not
satisfied, the fair market value of those assets which are not
qualified export assets on the last day of such taxable year,
or
(C) if neither of such conditions is satisfied, the sum of
the amounts required by subparagraphs (A) and (B).
(2) Reasonable cause for failure
The conditions under paragraph (1) shall be deemed satisfied in
the case of a distribution made under such paragraph -
(A) if the failure to meet the requirements of subsection
(a)(1)(A) or (B), and the failure to make such distribution
prior to the date on which made, are due to reasonable cause;
and
(B) the corporation pays, within the 30-day period beginning
with the day on which such distribution is made, to the
Secretary, if such corporation makes such distribution after
the 15th day of the 9th months after the close of the taxable
year, an amount determined by multiplying (i) the amount equal
to 4 1/2 percent of such distribution, by (ii) the number of
its taxable years which begin after the taxable year with
respect to which such distribution is made and before such
distribution is made. For purposes of this title, any payment
made pursuant to this paragraph shall be treated as interest.
(3) Certain distributions made within 8 1/2 months after close
of taxable year deemed for reasonable cause
A distribution made on or before the 15th day of the 9th month
after the close of the taxable year shall be deemed for
reasonable cause for purposes of paragraph (2)(A) if -
(A) at least 70 percent of the gross receipts of such
corporation for such taxable year consist of qualified export
receipts, and
(B) the adjusted basis of the qualified export assets held by
the corporation on the last day of each month of the taxable
year equals or exceeds 70 percent of the sum of the adjusted
basis of all assets held by the corporation on such day.
(d) Ineligible corporations
The following corporations shall not be eligible to be treated as
a DISC -
(1) a corporation exempt from tax by reason of section 501,
(2) a personal holding company (as defined in section 542),
(3) a financial institution to which section 581 applies,
(4) an insurance company subject to the tax imposed by
subchapter L,
(5) a regulated investment company (as defined in section
851(a)),
(6) a China Trade Act corporation receiving the special
deduction provided in section 941(a),(!1) or
(7) an S corporation.
(e) Coordination with personal holding company provisions in case
of certain produced film rents
If -
(1) a corporation (hereinafter in this subsection referred to
as "subsidiary") was established to take advantage of the
provisions of this part, and
(2) a second corporation (hereinafter in this subsection
referred to as "parent") throughout the taxable year owns
directly at least 80 percent of the stock of the subsidiary,
then, for purposes of applying subsection (d)(2) and section 541
(relating to personal holding company tax) to the subsidiary for
the taxable year, there shall be taken into account under section
543(a)(5) (relating to produced film rents) any interest in a film
acquired by the parent and transferred to the subsidiary as if such
interest were acquired by the subsidiary at the time it was
acquired by the parent.
-SOURCE-
(Added Pub. L. 92-178, title V, Sec. 501, Dec. 10, 1971, 85 Stat.
535; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1834; Pub. L. 97-354, Sec. 5(a)(32), Oct. 19,
1982, 96 Stat. 1695; Pub. L. 98-369, div. A, title VIII, Sec.
802(c)(1), July 18, 1984, 98 Stat. 999; Pub. L. 104-188, title I,
Sec. 1616(b)(11), Aug. 20, 1996, 110 Stat. 1857.)
-REFTEXT-
REFERENCES IN TEXT
The China Trade Act, referred to in subsec. (d)(6), is act Sept.
19, 1922, ch. 346, 42 Stat. 849, as amended, which is classified
generally to chapter 4 (Sec. 141 et seq.) of Title 15, Commerce and
Trade. For complete classification of this Act to the Code, see
section 141 of Title 15 and Tables.
Section 941, referred to in subsec. (d)(6), was repealed by Pub.
L. 94-455, title X, Sec. 1053(c), Oct. 4, 1976, 90 Stat. 1648.
-MISC1-
AMENDMENTS
1996 - Subsec. (d)(3). Pub. L. 104-188 struck out "or 593" after
"section 581".
1984 - Subsec. (a)(1)(E). Pub. L. 98-369 added subpar. (E).
1982 - Subsec. (d)(7). Pub. L. 97-354 substituted "an S
corporation" for "an electing small business corporation (as
defined in section 1371(b))".
1976 - Subsecs. (a)(2), (b)(1), (3), (c)(2)(B). Pub. L. 94-455
struck out "or his delegate" after "Secretary" wherever appearing.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1995, see section 1616(c) of Pub. L.
104-188, set out as a note under section 593 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to transactions after Dec.
31, 1984, in taxable years ending after such date, see section
805(a)(1) of Pub. L. 98-369, as amended, set out as a note under
section 245 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 246, 751, 861, 901, 904,
991, 995, 996, 1014, 1504, 6501 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 993 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 IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
Subpart A - Treatment of Qualifying Corporations
-HEAD-
Sec. 993. Definitions
-STATUTE-
(a) Qualified export receipts
(1) General rule
For purposes of this part, except as provided by regulations
under paragraph (2), the qualified export receipts of a
corporation are -
(A) gross receipts from the sale, exchange, or other
disposition of export property,
(B) gross receipts from the lease or rental of export
property, which is used by the lessee of such property outside
the United States,
(C) gross receipts for services which are related and
subsidiary to any qualified sale, exchange, lease, rental, or
other disposition of export property by such corporation,
(D) gross receipts from the sale, exchange, or other
disposition of qualified export assets (other than export
property),
(E) dividends (or amounts includible in gross income under
section 951) with respect to stock of a related foreign export
corporation (as defined in subsection (e)),
(F) interest on any obligation which is a qualified export
asset,
(G) gross receipts for engineering or architectural services
for construction projects located (or proposed for location)
outside the United States, and
(H) gross receipts for the performance of managerial services
in furtherance of the production of other qualified export
receipts of a DISC.
(2) Excluded receipts
The Secretary may under regulations designate receipts from the
sale, exchange, lease, rental, or other disposition of export
property, and from services, as not being receipts described in
paragraph (1) if he determines that such sale, exchange, lease,
rental, or other disposition, or furnishing of services -
(A) is for ultimate use in the United States;
(B) is accomplished by a subsidy granted by the United States
or any instrumentality thereof;
(C) is for use by the United States or any instrumentality
thereof where the use of such export property or services is
required by law or regulation.
For purposes of this part, the term "qualified export receipts"
does not include receipts from a corporation which is a DISC for
its taxable year in which the receipts arise and which is a
member of a controlled group (as defined in paragraph (3)) which
includes the recipient corporation.
(3) Definition of controlled group
For purposes of this part, the term "controlled group" has the
meaning assigned to the term "controlled group of corporations"
by section 1563(a), except that the phrase "more than 50 percent"
shall be substituted for the phrase "at least 80 percent" each
place it appears therein, and section 1563(b) shall not apply.
(b) Qualified export assets
For purposes of this part, the qualified export assets of a
corporation are -
(1) export property (as defined in subsection (c));
(2) assets used primarily in connection with the sale, lease,
rental, storage, handling, transportation, packaging, assembly,
or servicing of export property, or the performance of
engineering or architectural services described in subparagraph
(G) of subsection (a)(1) or managerial services in furtherance of
the production of qualified export receipts described in
subparagraphs (A), (B), (C), and (G) of subsection (a)(1);
(3) accounts receivable and evidences of indebtedness which
arise by reason of transactions of such corporation or of another
corporation which is a DISC and which is a member of a controlled
group which includes such corporation described in subparagraph
(A), (B), (C), (D), (G), or (H), of subsection (a)(1);
(4) money, bank deposits, and other similar temporary
investments, which are reasonably necessary to meet the working
capital requirements of such corporation;
(5) obligations arising in connection with a producer's loan
(as defined in subsection (d));
(6) stock or securities of a related foreign export corporation
(as defined in subsection (e));
(7) obligations issued, guaranteed, or insured, in whole or in
part, by the Export-Import Bank of the United States or the
Foreign Credit Insurance Association in those cases where such
obligations are acquired from such Bank or Association or from
the seller or purchaser of the goods or services with respect to
which such obligations arose;
(8) obligations issued by a domestic corporation organized
solely for the purpose of financing sales of export property
pursuant to an agreement with the Export-Import Bank of the
United States under which such corporation makes export loans
guaranteed by such bank; and
(9) amounts (other than reasonable working capital) on deposit
in the United States that are utilized during the period provided
for in, and otherwise in accordance with, regulations prescribed
by the Secretary to acquire other qualified export assets.
(c) Export property
(1) In general
For purposes of this part, the term "export property" means
property -
(A) manufactured, produced, grown, or extracted in the United
States by a person other than a DISC,
(B) held primarily for sale, lease, or rental, in the
ordinary course of trade or business, by, or to, a DISC, for
direct use, consumption, or disposition outside the United
States, and
(C) not more than 50 percent of the fair market value of
which is attributable to articles imported into the United
States.
In applying subparagraph (C), the fair market value of any
article imported into the United States shall be its appraised
value as determined by the Secretary under section 402 of the
Tariff Act of 1930 (19 U.S.C. 1401a) in connection with its
importation.
(2) Excluded property
For purposes of this part, the term "export property" does not
include -
(A) property leased or rented by a DISC for use by any member
of a controlled group (as defined in subsection (a)(3)) which
includes the DISC,
(B) patents, inventions, models, designs, formulas, or
processes, whether or not patented, copyrights (other than
films, tapes, records, or similar reproductions, for commercial
or home use), goodwill, trademarks, trade brands, franchises,
or other like property,
(C) products of a character with respect to which a deduction
for depletion is allowable (including oil, gas, coal, or
uranium products) under section 613 or 613A,
(D) products the export of which is prohibited or curtailed
under section 7(a) of the Export Administration Act of 1979 to
effectuate the policy set forth in paragraph (2)(C) of section
3 of such Act (relating to the protection of the domestic
economy), or
(E) any unprocessed timber which is a softwood.
Subparagraph (C) shall not apply to any commodity or product at
least 50 percent of the fair market value of which is
attributable to manufacturing or processing, except that
subparagraph (C) shall apply to any primary product from oil,
gas, coal, or uranium. For purposes of the preceding sentence,
the term "processing" does not include extracting or handling,
packing, packaging, grading, storing, or transporting. For
purposes of subparagraph (E), the term "unprocessed timber" means
any log, cant, or similar form of timber.
(3) Property in short supply
If the President determines that the supply of any property
described in paragraph (1) is insufficient to meet the
requirements of the domestic economy, he may by Executive order
designate the property as in short supply. Any property so
designated shall be treated as property not described in
paragraph (1) during the period beginning with the date specified
in the Executive order and ending with the date specified in an
Executive order setting forth the President's determination that
the property is no longer in short supply.
(d) Producer's loans
(1) In general
An obligation, subject to the rules provided in paragraphs (2)
and (3), shall be treated as arising out of a producer's loan if
-
(A) the loan, when added to the unpaid balance of all other
producer's loans made by the DISC, does not exceed the
accumulated DISC income at the beginning of the month in which
the loan is made;
(B) the obligation is evidenced by a note (or other evidence
of indebtedness) with a stated maturity date not more than 5
years from the date of the loan;
(C) the loan is made to a person engaged in the United States
in the manufacturing, production, growing, or extraction of
export property determined without regard to subparagraph (C)
or (D) of subsection (c)(2), (referred to hereinafter as the
"borrower"); and
(D) at the time of such loan it is designated as a producer's
loan.
(2) Limitation
An obligation shall be treated as arising out of a producer's
loan only to the extent that such loan, when added to the unpaid
balance of all other producer's loans to the borrower outstanding
at the time such loan is made, does not exceed an amount
determined by multiplying the sum of -
(A) the amount of the borrower's adjusted basis determined at
the beginning of the borrower's taxable year in which the loan
is made, in plant, machinery, and equipment, and supporting
production facilities in the United States;
(B) the amount of the borrower's property held primarily for
sale, lease, or rental, to customers in the ordinary course of
trade or business, at the beginning of such taxable year; and
(C) the aggregate amount of the borrower's research and
experimental expenditures (within the meaning of section 174)
in the United States during all preceding taxable years
beginning after December 31, 1971,
by the percentage which the borrower's receipts, during the 3
taxable years immediately preceding the taxable year (but not
including any taxable year commencing prior to 1972) in which the
loan is made, from the sale, lease, or rental outside the United
States of property which would be export property (determined
without regard to subparagraph (C) or (D) of subsection (c)(2))
if held by a DISC is of the gross receipts during such 3 taxable
years from the sale, lease, or rental of property held by such
borrower primarily for sale, lease, or rental to customers in the
ordinary course of the trade or business of such borrower.
(3) Increased investment requirement
An obligation shall be treated as arising out of a producer's
loan in a taxable year only to the extent that such loan, when
added to the unpaid balance of all other producer's loans to the
borrower made during such taxable year, does not exceed an amount
equal to -
(A) the amount by which the sum of the adjusted basis of
assets described in paragraph (2)(A) and (B) on the last day of
the taxable year in which the loan is made exceeds the sum of
the adjusted basis of such assets on the first day of such
taxable year; plus
(B) the aggregate amount of the borrower's research and
experimental expenditures (within the meaning of section 174)
in the United States during such taxable year.
(4) Special limitation in the case of domestic film maker
(A) In general
In the case of a borrower who is a domestic film maker and
who incurs an obligation to a DISC for the making of a film,
and such DISC is engaged in the trade or business of selling,
leasing, or renting films which are export property, the
limitation described in paragraph (2) may be determined (to the
extent provided under regulations prescribed by the Secretary)
on the basis of -
(i) the sum of the amounts described in subparagraphs (A),
(B), and (C) thereof plus reasonable estimates of all such
amounts to be incurred at any time by the borrower with
respect to films which are commenced within the taxable year
in which the loan is made, and
(ii) the percentage which, based on the experience of
producers of similar films, the annual receipts of such
producers from the sale, lease, or rental of such films
outside the United States is of the annual gross receipts of
such producers from the sale, lease, or rental of such films.
(B) Domestic film maker
For purposes of this paragraph, a borrower is a domestic film
maker with respect to a film if -
(i) such borrower is a United States person within the
meaning of section 7701(a)(30), except that with respect to a
partnership, all of the partners must be United States
persons, and with respect to a corporation, all of its
officers and at least a majority of its directors must be
United States persons;
(ii) such borrower is engaged in the trade or business of
making the film with respect to which the loan is made;
(iii) the studio, if any, used or to be used for the taking
of photographs and the recording of sound incorporated into
such film is located in the United States;
(iv) the aggregate playing time of portions of such film
photographed outside the United States does not or will not
exceed 20 percent of the playing time of such film; and
(v) not less than 80 percent of the total amount paid or to
be paid for services performed in the making of such film is
paid or to be paid to persons who are United States persons
at the time such services are performed or consists of
amounts which are fully taxable by the United States.
(C) Special rules for application of subparagraph (B)(v)
For purposes of clause (v) of subparagraph (B) -
(i) there shall not be taken into account any amount which
is contingent upon receipts or profits of the film and which
is fully taxable by the United States (within the meaning of
clause (ii)); and
(ii) any amount paid or to be paid to a United States
person, to a non-resident alien individual, or to a
corporation which furnishes the services of an officer or
employee to the borrower with respect to the making of a
film, shall be treated as fully taxable by the United States
only if the total amount received by such person, individual,
officer, or employee for services performed in the making of
such film is fully included in gross income for purposes of
this chapter.
(e) Related foreign export corporation
In determining whether a corporation (here-inafter in this
subsection referred to as "the domestic corporation") is a DISC -
(1) Foreign international sales corporation
A foreign corporation is a related foreign export corporation
if -
(A) stock possessing more than 50 percent of the total
combined voting power of all classes of stock entitled to vote
is owned directly by the domestic corporation,
(B) 95 percent or more of such foreign corporation's gross
receipts for its taxable year ending with or within the taxable
year of the domestic corporation consists of qualified export
receipts described in subparagraphs (A), (B), (C), and (D) of
subsection (a)(1) and interest on any obligation described in
paragraphs (3) and (4) of subsection (b), and
(C) the adjusted basis of the qualified export assets
(described in paragraphs (1), (2), (3), and (4) of subsection
(b)) held by such foreign corporation at the close of such
taxable year equals or exceeds 95 percent of the sum of the
adjusted basis of all assets held by it at the close of such
taxable year.
(2) Real property holding company
A foreign corporation is a related foreign export corporation
if -
(A) stock possessing more than 50 percent of the total
combined voting power of all classes of stock entitled to vote
is owned directly by the domestic corporation, and
(B) its exclusive function is to hold real property for the
exclusive use (under a lease or otherwise) of the domestic
corporation.
(3) Associated foreign corporation
A foreign corporation is a related foreign export corporation
if -
(A) less than 10 percent of the total combined voting power
of all classes of stock entitled to vote of such foreign
corporation is owned (within the meaning of section 1563 (d)
and (e)) by the domestic corporation or by a controlled group
of corporations (within the meaning of section 1563) of which
the domestic corporation is a member, and
(B) the ownership of stock or securities in such foreign
corporation by the domestic corporation is determined (under
regulations prescribed by the Secretary) to be reasonably in
furtherance of a transaction or transactions giving rise to
qualified export receipts of the domestic corporation.
(f) Gross receipts
For purposes of this part, the term "gross receipts" means the
total receipts from the sale, lease, or rental of property held
primarily for sale, lease, or rental in the ordinary course of
trade or business, and gross income from all other sources. In the
case of commissions on the sale, lease, or rental of property, the
amount taken into account for purposes of this part as gross
receipts shall be the gross receipts on the sale, lease, or rental
of the property on which such commissions arose.
(g) United States defined
For purposes of this part, the term "United States" includes the
Commonwealth of Puerto Rico and the possessions of the United
States.
-SOURCE-
(Added Pub. L. 92-178, title V, Sec. 501, Dec. 10, 1971, 85 Stat.
538; amended Pub. L. 93-482, Sec. 3(a), Oct. 26, 1974, 88 Stat.
1456; Pub. L. 94-12, title VI, Sec. 603(a), Mar. 29, 1975, 89 Stat.
64; Pub. L. 94-455, title XI, Sec. 1101(b), (c), title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1658, 1834; Pub. L. 96-39,
title II, Sec. 202(c)(2), July 26, 1979, 93 Stat. 202; Pub. L.
96-72, Sec. 22(c), Sept. 29, 1979, 93 Stat. 535; Pub. L. 98-369,
div. A, title VIII, Sec. 802(c)(2), July 18, 1984, 98 Stat. 999;
Pub. L. 103-66, title XIII, Sec. 13239(b), Aug. 10, 1993, 107 Stat.
509.)
-REFTEXT-
REFERENCES IN TEXT
Sections 3(2)(C) and 7(a) of the Export Administration Act of
1979, referred to in subsec. (c)(2)(D), are classified,
respectively, to sections 2402(2)(C) and 2406(a) of the Appendix to
Title 50, War and National Defense.
-MISC1-
AMENDMENTS
1993 - Subsec. (c)(2). Pub. L. 103-66, Sec. 13239(b)(2), inserted
at end "For purposes of subparagraph (E), the term 'unprocessed
timber' means any log, cant, or similar form of timber."
Subsec. (c)(2)(E). Pub. L. 103-66, Sec. 13239(b)(1), added
subpar. (E).
1984 - Subsec. (a)(3). Pub. L. 98-369 substituted "the term
'controlled group of corporations' by" for "such term by".
1979 - Subsec. (c)(1). Pub. L. 96-39 substituted "of the Tariff
Act of 1930 (19 U.S.C. 1401a)" for "402a of the Tariff Act of 1930
(19 U.S.C., sec. 1401a or 1402)".
Subsec. (c)(2)(D). Pub. L. 96-72 substituted "7(a) of the Export
Administration Act of 1979" for "4(b) of the Export Administration
Act of 1969 (50 U.S.C. App. 2403(b))" and "paragraph (2)(C)" for
"paragraph (2)(A)".
1976 - Subsecs. (a)(2), (b)(9). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (c). Pub. L. 94-455, Secs. 1101(b), 1906(b)(13)(A), in
par. (1) in provisions following subpar. (C), struck out "or his
delegate" after "Secretary", in par. (2)(B) "or" after "like
property", and in par. (2)(C), substituted "under section 613 or
613A" for "under section 611" after "uranium products)".
Subsec. (d)(1)(C). Pub. L. 94-455, Sec. 1101(c)(1), inserted
"determined without regard to subparagraph (C) or (D) of subsection
(c)(2)" after "export property".
Subsec. (d)(2). Pub. L. 94-455, Sec. 1101(c)(2), inserted
"(determined without regard to subparagraph (C) or (D) of
subsection (c)(2))" after "would be export property".
Subsecs. (d)(4)(A), (e)(3)(B). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
1975 - Subsec. (c)(2). Pub. L. 94-12 added subpars. (C) and (D)
and provisions following subpar. (D).
1974 - Subsec. (b)(3). Pub. L. 93-482 inserted "or of another
corporation which is a DISC and which is a member of a controlled
group which includes such corporation" after "such corporation".
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to sales, exchanges, or
other dispositions after Aug. 10, 1993, see section 13239(e) of
Pub. L. 103-66, set out as a note under section 865 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to transactions after Dec.
31, 1984, in taxable years ending after such date, see section
805(a)(1) of Pub. L. 98-369, as amended, set out as a note under
section 245 of this title.
EFFECTIVE DATE OF 1979 AMENDMENTS
Amendment by Pub. L. 96-72 effective upon the expiration of the
Export Administration Act of 1969, which terminated on Sept. 30,
1979, or upon any prior date which the Congress by concurrent
resolution or the President by proclamation designated, see
References in Text note set out under section 2418 of Appendix to
Title 50, War and National Defense.
Amendment by Pub. L. 96-39 effective Jan. 1, 1981, with provision
for an earlier effective date under certain circumstances, see
section 204 of Pub. L. 96-39, set out as a note under section 1401a
of Title 19, Customs Duties.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1101(g)(2) of Pub. L. 94-455 provided that: "The
amendments made by subsection (b) [amending this section] shall
apply to sales, exchanges, and other dispositions made after March
18, 1975, in taxable years ending after such date."
Section 1101(g)(3) of Pub. L. 94-455 provided that: "The
amendments made by subsections (c) and (f) [amending this section]
shall apply to taxable years ending after March 18, 1975."
EFFECTIVE DATE OF 1975 AMENDMENT
Section 603(b) of Pub. L. 94-12, as amended by section 1101(f) of
Pub. L. 94-455; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat.
2095, provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by subsection (a) [amending this section] shall
apply to sales, exchanges, and other dispositions made after March
18, 1975, in taxable years ending after such date.
"(2) Binding contract. - The amendments made by subsection (a)
[amending this section] shall not apply to sales, exchanges, and
other dispositions made after March 18, 1975, but before March 19,
1980, if such sales, exchanges, and other dispositions are made
pursuant to a fixed contract. The term 'fixed contract' means a
contract which was, on March 18, 1975, and is at all times
thereafter binding on the DISC or a taxpayer which was a member of
the same controlled group (within the meaning of section 993(a)(3)
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) as the
DISC, which was entered into after the date on which the DISC
qualified as a DISC and the DISC and the taxpayer became members of
the same controlled group, and under which the price and quantity
of the products sold, exchanged, or otherwise disposed of cannot be
increased."
EFFECTIVE DATE OF 1974 AMENDMENT
Section 3(b) of Pub. L. 93-482 provided that: "The amendment made
by subsection (a) [amending this section] applies to taxable years
beginning after December 31, 1973. The amendment shall, at the
election of the taxpayer made within 90 days after the date of
enactment of this Act [Oct. 26, 1974], also apply to any taxable
year beginning after December 31, 1971, and before January 1,
1974."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 861, 908, 992, 995, 999
of this title.
-End-
-CITE-
26 USC Sec. 994 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 IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
Subpart A - Treatment of Qualifying Corporations
-HEAD-
Sec. 994. Inter-company pricing rules
-STATUTE-
(a) In general
In the case of a sale of export property to a DISC by a person
described in section 482, the taxable income of such DISC and such
person shall be based upon a transfer price which would allow such
DISC to derive taxable income attributable to such sale (regardless
of the sales price actually charged) in an amount which does not
exceed the greatest of -
(1) 4 percent of the qualified export receipts on the sale of
such property by the DISC plus 10 percent of the export promotion
expenses of such DISC attributable to such receipts,
(2) 50 percent of the combined taxable income of such DISC and
such person which is attributable to the qualified export
receipts on such property derived as the result of a sale by the
DISC plus 10 percent of the export promotion expenses of such
DISC attributable to such receipts, or
(3) taxable income based upon the sale price actually charged
(but subject to the rules provided in section 482).
(b) Rules for commissions, rentals, and marginal costing
The Secretary shall prescribe regulations setting forth -
(1) rules which are consistent with the rules set forth in
subsection (a) for the application of this section in the case of
commissions, rentals, and other income, and
(2) rules for the allocation of expenditures in computing
combined taxable income under subsection (a)(2) in those cases
where a DISC is seeking to establish or maintain a market for
export property.
(c) Export promotion expenses
For purposes of this section, the term "export promotion
expenses" means those expenses incurred to advance the distribution
or sale of export property for use, consumption, or distribution
outside of the United States, but does not include income taxes.
Such expenses shall also include freight expenses to the extent of
50 percent of the cost of shipping export property aboard airplanes
owned and operated by United States persons or ships documented
under the laws of the United States in those cases where law or
regulations does not require that such property be shipped aboard
such airplanes or ships.
-SOURCE-
(Added Pub. L. 92-178, title V, Sec. 501, Dec. 10, 1971, 85 Stat.
543; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
-End-
-CITE-
26 USC Subpart B - Treatment of Distributions to
Shareholders 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 IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
Subpart B - Treatment of Distributions to Shareholders
-HEAD-
SUBPART B - TREATMENT OF DISTRIBUTIONS TO SHAREHOLDERS
-MISC1-
Sec.
995. Taxation of DISC income to shareholders.
996. Rules for allocation in the case of distributions and
losses.
997. Special subchapter C rules.
-End-
-CITE-
26 USC Sec. 995 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 IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
Subpart B - Treatment of Distributions to Shareholders
-HEAD-
Sec. 995. Taxation of DISC income to shareholders
-STATUTE-
(a) General rule
A shareholder of a DISC or former DISC shall be subject to
taxation on the earnings and profits of a DISC as provided in this
chapter, but subject to the modifications of this subpart.
(b) Deemed distributions
(1) Distributions in qualified years
A shareholder of a DISC shall be treated as having received a
distribution taxable as a dividend with respect to his stock in
an amount which is equal to his pro rata share of the sum (or, if
smaller, the earnings and profits for the taxable year) of -
(A) the gross interest derived during the taxable year from
producer's loans,
(B) the gain recognized by the DISC during the taxable year
on the sale or exchange of property, other than property which
in the hands of the DISC is a qualified export asset,
previously transferred to it in a transaction in which gain was
not recognized in whole or in part, but only to the extent that
the transferor's gain on the previous transfer was not
recognized,
(C) the gain (other than the gain described in subparagraph
(B)) recognized by the DISC during the taxable year on the sale
or exchange of property (other than property which in the hands
of the DISC is stock in trade or other property described in
section 1221(a)(1)) previously transferred to it in a
transaction in which gain was not recognized in whole or in
part, but only to the extent that the transferor's gain on the
previous transfer was not recognized and would have been
treated as ordinary income if the property has been sold or
exchanged rather than transferred to the DISC,
(D) 50 percent of the taxable income of the DISC for the
taxable year attributable to military property,
(E) the taxable income of the DISC attributable to qualified
export receipts of the DISC for the taxable year which exceed
$10,000,000,
(F) the sum of -
(i) in the case of a shareholder which is a C corporation,
one-seventeenth of the excess of the taxable income of the
DISC for the taxable year, before reduction for any
distributions during the year, over the sum of the amounts
deemed distributed for the taxable year under subparagraphs
(A), (B), (C), (D), and (E),
(ii) an amount equal to 16/17 of the excess referred to
in clause (i), multiplied by the international boycott factor
determined under section 999, and
(iii) any illegal bribe, kickback, or other payment (within
the meaning of section 162(c)) paid by or on behalf of the
DISC directly or indirectly to an official, employee, or
agent in fact of a government, and
(G) the amount of foreign investment attributable to
producer's loans (as defined in subsection (d)) of a DISC for
the taxable year.
Distributions described in this paragraph shall be deemed to be
received on the last day of the taxable year of the DISC in which
the income was derived. In the case of a distribution described
in subparagraph (G), earnings and profits for the taxable year
shall include accumulated earnings and profits.
(2) Distributions upon disqualification
(A) A shareholder of a corporation which revoked its election
to be treated as a DISC or failed to satisfy the conditions of
section 992(a)(1) for a taxable year shall be deemed to have
received (at the time specified in subparagraph (B)) a
distribution taxable as a dividend equal to his pro rata share of
the DISC income of such corporation accumulated during the
immediately preceding consecutive taxable years for which the
corporation was a DISC.
(B) Distributions described in subparagraph (A) shall be deemed
to be received in equal installments on the last day of each of
the 10 taxable years of the corporation following the year of the
termination or disqualification described in subparagraph (A)
(but in no case over more than twice the number immediately
preceding consecutive taxable years during which the corporation
was a DISC).
(3) Taxable income attributable to military property
(A) In general
For purposes of paragraph (1)(D), taxable income of a DISC
for the taxable year attributable to military property shall be
determined by only taking into account -
(i) the gross income of the DISC for the taxable year which
is attributable to military property, and
(ii) the deductions which are properly apportioned or
allocated to such income.
(B) Military property
For purposes of subparagraph (A), the term "military
property" means any property which is an arm, ammunition, or
implement of war designated in the munitions list published
pursuant to section 38 of the Arms Export Control Act (22
U.S.C. 2778).
(4) Aggregation of qualified export receipts
(A) In general
For purposes of applying paragraph (1)(E), all DISC's which
are members of the same controlled group shall be treated as a
single corporation.
(B) Allocation
The dollar amount under paragraph (1)(E) shall be allocated
among the DISC's which are members of the same controlled group
in a manner provided in regulations prescribed by the
Secretary.
(c) Gain on disposition of stock in a DISC
(1) In general
If -
(A) a shareholder disposes of stock in a DISC or former DISC
any gain recognized on such disposition shall be included in
gross income as a dividend to the extent provided in paragraph
(2), or
(B) stock of a DISC or former DISC is disposed of in a
transaction in which the separate corporate existence of the
DISC or former DISC is terminated other than by a mere change
in place of organization, however effected, any gain realized
on the disposition of such stock in the transaction shall be
recognized notwithstanding any other provision of this title to
the extent provided in paragraph (2) and to the extent so
recognized shall be included in gross income as a dividend.
(2) Amount included
The amounts described in paragraph (1) shall be included in
gross income as a dividend to the extent of the accumulated DISC
income of the DISC or former DISC which is attributable to the
stock disposed of and which was accumulated in taxable years of
such corporation during the period or periods the stock disposed
of was held by the shareholder which disposed of such stock.
(d) Foreign investment attributable to DISC earnings
For the purposes of this part -
(1) In general
The amount of foreign investment attributable to producer's
loans of a DISC for a taxable year shall be the smallest of -
(A) the net increase in foreign assets by members of the
controlled group (as defined in section 993(a)(3)) which
includes the DISC,
(B) the actual foreign investment by domestic members of such
group, or
(C) the amount of outstanding producer's loans by such DISC
to members of such controlled group.
(2) Net increase in foreign assets
The term "net increase in foreign assets" of a controlled group
means the excess of -
(A) the amount incurred by such group to acquire assets
(described in section 1231(b)) located outside the United
States over,
(B) the sum of -
(i) the depreciation with respect to assets of such group
located outside the United States;
(ii) the outstanding amount of stock or debt obligations of
such group issued after December 31, 1971, to persons other
than the United States persons or any member of such group;
(iii) one-half the earnings and profits of foreign members
of such group and foreign branches of domestic members of
such group;
(iv) one-half the royalties and fees paid by foreign
members of such group to domestic members of such group; and
(v) the uncommitted transitional funds of the group as
determined under paragraph (4).
For purposes of this paragraph, assets which are qualified
export assets of a DISC (or would be qualified export assets if
owned by a DISC) shall not be taken into account. Amounts
described in this paragraph (other than in subparagraphs
(B)(ii) and (v)) shall be taken into account only to the extent
they are attributable to taxable years beginning after December
31, 1971.
(3) Actual foreign investment
The term "actual foreign investment" by domestic members of a
controlled group means the sum of -
(A) contributions to capital of foreign members of the group
by domestic members of the group after December 31, 1971,
(B) the outstanding amount of stock or debt obligations of
foreign members of such group (other than normal trade
indebtedness) issued after December 31, 1971, to domestic
members of such group,
(C) amounts transferred by domestic members of the group
after the December 31, 1971, to foreign branches of such
members, and
(D) one-half the earnings and profits of foreign members of
such group and foreign branches of domestic members of such
group for taxable years beginning after December 31, 1971.
As used in this subsection, the term "domestic member" means a
domestic corporation which is a member of a controlled group (as
defined in section 993(a)(3)), and the term "foreign member"
means a foreign corporation which is a member of such a
controlled group.
(4) Uncommitted transitional funds
The uncommitted transitional funds of the group shall be an
amount equal to the sum of -
(A) the excess of -
(i) the amount of stock or debt obligations of domestic
members of such group outstanding on December 31, 1971, and
issued on or after January 1, 1968, to persons other than
United States persons or any members of such group, but only
to the extent the taxpayer establishes that such amount
constitutes a long-term borrowing for purposes of the foreign
direct investment program, over
(ii) the net amount of actual foreign investment by
domestic members of such group during the period that such
stock or debt obligations have been outstanding; and
(B) the amount of liquid assets to the extent not included in
subparagraph (A) held by foreign members of such group and
foreign branches of domestic members of such group on October
31, 1971, in excess of their reasonable working capital needs
on such date.
For purposes of this paragraph, the term "liquid assets" means
money, bank deposits (not including time deposits), and
indebtedness of 2 years or less to maturity on the date of
acquisition; and the actual foreign investment shall be
determined under paragraph (3) without regard to the date in
subparagraph (A) of such paragraph and without regard to
subparagraph (D) of such paragraph.
(5) Special rule
Under regulations prescribed by the Secretary the
determinations under this subsection shall be made on a
cumulative basis with proper adjustments for amounts previously
taken into account.
(e) Certain transfers of DISC assets
If -
(1) a corporation owns, directly or indirectly, all of the
stock of a subsidiary and a DISC,
(2) the subsidiary has been engaged in the active conduct of a
trade or business (within the meaning of section 355(b))
throughout the 5-year period ending on the date of the transfer
and continues to be so engaged thereafter, and
(3) during the taxable year of the subsidiary in which its
stock is transferred and its preceding taxable year, such trade
or business gives rise to qualified export receipts of the
subsidiary and the DISC,
then, under such terms and conditions as the Secretary by
regulations shall prescribe, transfers of assets, stock, or both,
will be deemed to be a reorganization within the meaning of section
368, a transaction to which section 355 applies, an exchange of
stock to which section 351 applies, or a combination thereof. The
preceding sentence shall apply only to the extent that the transfer
or transfers involved are for the purpose of preventing the
separation of the ownership of the stock in the DISC from the
ownership of the trade or business which (during the base period)
produced the export gross receipts of the DISC.
(f) Interest on DISC-related deferred tax liability
(1) In general
A shareholder of a DISC shall pay for each taxable year
interest in an amount equal to the product of -
(A) the shareholder's DISC-related deferred tax liability for
such year, and
(B) the base period T-bill rate.
(2) Shareholder's DISC-related deferred tax liability
For purposes of this subsection -
(A) In general
The term "shareholder's DISC-related deferred tax liability"
means, with respect to any taxable year of a shareholder of a
DISC, the excess of -
(i) the amount which would be the tax liability of the
shareholder for the taxable year if the deferred DISC income
of such shareholder for such taxable year were included in
gross income as ordinary income, over
(ii) the actual amount of the tax liability of such
shareholder for such taxable year.
Determinations under the preceding sentence shall be made
without regard to carrybacks to such taxable year.
(B) Adjustments for losses, credits, and other items
The Secretary shall prescribe regulations which provide such
adjustments -
(i) to the accounts of the DISC, and
(ii) to the amount of any carryover or carryback of the
shareholder,
as may be necessary or appropriate in the case of net operating
losses, credits, and carryovers, and carrybacks of losses and
credits.
(C) Tax liability
The term "tax liability" means the amount of the tax imposed
by this chapter for the taxable year reduced by credits
allowable against such tax (other than credits allowable under
sections 31, 32, and 34).
(3) Deferred DISC income
For purposes of this subsection -
(A) In general
The term "deferred DISC income" means, with respect to any
taxable year of a shareholder, the excess of -
(i) the shareholder's pro rata share of accumulated DISC
income (for periods after 1984) of the DISC as of the close
of the computation year, over
(ii) the amount of the distributions-in-excess-of-income
for the taxable year of the DISC following the computation
year.
(B) Computation year
For purposes of applying subparagraph (A) with respect to any
taxable year of a shareholder, the computation year is the
taxable year of the DISC which ends with (or within) the
taxable year of the shareholder which precedes the taxable year
of the shareholder for which the amount of deferred DISC income
is being determined.
(C) Distributions-in-excess-of-income
For purposes of subparagraph (A), the term
"distributions-in-excess-of-income" means, with respect to any
taxable year of a DISC, the excess (if any) of -
(i) the amount of actual distributions to the shareholder
out of accumulated DISC income, over
(ii) the shareholder's pro rata share of the DISC income
for such taxable year.
(4) Base period T-bill rate
For purposes of this subsection, the term "base period T-bill
rate" means the annual rate of interest determined by the
Secretary to be equivalent to the average of the 1-year constant
maturity Treasury yields, as published by the Board of Governors
of the Federal Reserve System, for the 1-year period ending on
September 30 of the calendar year ending with (or of the most
recent calendar year ending before) the close of the taxable year
of the shareholder.
(5) Short years
The Secretary shall prescribe such regulations as may be
necessary for the application of this subsection to short years
of the DISC, the shareholder, or both.
(6) Payment and assessment and collection of interest
The interest accrued during any taxable year which a
shareholder is required to pay under paragraph (1) shall be
treated, for purposes of this title, as interest payable under
section 6601 and shall be paid by the shareholder at the time the
tax imposed by this chapter for such taxable year is required to
be paid.
(7) DISC includes former DISC
For purposes of this subsection, the term "DISC" includes a
former DISC.
(g) Treatment of tax-exempt shareholders
If any organization described in subsection (a)(2) or (b)(2) of
section 511 (or any other person otherwise subject to tax under
section 511) is a shareholder in a DISC -
(1) any amount deemed distributed to such shareholder under
subsection (b),
(2) any actual distribution to such shareholder which under
section 996 is treated as out of accumulated DISC income, and
(3) any gain which is treated as a dividend under subsection
(c),
shall be treated as derived from the conduct of an unrelated trade
or business (and the modifications of section 512(b) shall not
apply). The rules of the preceding sentence shall apply also for
purposes of determining any such shareholder's DISC-related
deferred tax liability under subsection (f).
-SOURCE-
(Added Pub. L. 92-178, title V, Sec. 501, Dec. 10, 1971, 85 Stat.
544; amended Pub. L. 94-455, title X, Secs. 1063, 1065(a)(2), title
XI, Sec. 1101(a), (d)(1), title XIX, Secs. 1901(b)(3)(K),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1650, 1654, 1655, 1658,
1793, 1834; Pub. L. 95-600, title VII, Secs. 701(u)(12)(B),
703(i)(1), (2), Nov. 6, 1978, 92 Stat. 2918, 2940; Pub. L. 98-369,
div. A, title I, Sec. 68(d), title VIII, Sec. 802(a), (b), July 18,
1984, 98 Stat. 588, 997, 999; Pub. L. 99-514, title XVIII, Sec.
1876(b)(2), (g), (p)(1), Oct. 22, 1986, 100 Stat. 2898, 2900, 2902;
Pub. L. 100-647, title I, Secs. 1006(e)(15), 1012(bb)(6)(A), Nov.
10, 1988, 102 Stat. 3402, 3535; Pub. L. 101-239, title VII, Sec.
7811(i)(12), Dec. 19, 1989, 103 Stat. 2411; Pub. L. 106-170, title
V, Sec. 532(c)(2)(R), Dec. 17, 1999, 113 Stat. 1931; Pub. L.
106-554, Sec. 1(a)(7) [title III, Secs. 307(c), 319(12)], Dec. 21,
2000, 114 Stat. 2763, 2763A-636, 2763A-646; Pub. L. 107-147, title
IV, Sec. 417(15), Mar. 9, 2002, 116 Stat. 56.)
-MISC1-
AMENDMENTS
2002 - Subsec. (b)(3)(B). Pub. L. 107-147 substituted "Arms
Export Control Act" for "International Security Assistance and Arms
Export Control Act of 1976".
2000 - Subsec. (b)(3)(B). Pub. L. 106-554, Sec. 1(a)(7) [title
III, Sec. 319(12)], substituted "section 38 of the International
Security Assistance and Arms Export Control Act of 1976 (22 U.S.C.
2778)" for "the Military Security Act of 1954 (22 U.S.C. 1934)".
Subsec. (f)(4). Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec.
307(c)], substituted "the average of the 1-year constant maturity
Treasury yields, as published by the Board of Governors of the
Federal Reserve System, for the 1-year period" for "the average
investment yield of United States Treasury bills with maturities of
52 weeks which were auctioned during the 1-year period".
1999 - Subsec. (b)(1)(C). Pub. L. 106-170 substituted
"1221(a)(1)" for "1221(1)".
1989 - Subsec. (g). Pub. L. 101-239 substituted "section 511 (or
any other person otherwise subject to tax under section 511)" for
"section 511" in introductory provisions.
1988 - Subsec. (c)(1). Pub. L. 100-647, Sec. 1006(e)(15), struck
out subpar. (C) and last sentence which read as follows:
"(C) a shareholder distributes, sells, or exchanges stock in a
DISC or former DISC in a transaction to which section 311, 336,
or 337 applies, then an amount equal to the excess of the fair
market value of such stock over its adjusted basis in the hands
of the shareholder shall, notwithstanding any provision of this
title, be included in gross income of the shareholder as a
dividend to the extent provided in paragraph (2).
Subparagraph (C) shall not apply if the person receiving the stock
in the disposition has a holding period for the stock which
includes the period for which the stock was held by the shareholder
disposing of such stock."
Subsec. (g). Pub. L. 100-647, Sec. 1012(bb)(6)(A), added subsec.
(g).
1986 - Subsec. (b)(1)(F)(i). Pub. L. 99-514, Sec. 1876(b)(2)(A),
inserted "in the case of a shareholder which is a C corporation,".
Subsec. (b)(1)(F)(ii). Pub. L. 99-514, Sec. 1876(b)(2)(B),
substituted " 16/17 of the excess referred to in clause (i)," for
"the amount determined under clause (i)".
Subsec. (f)(4) to (6). Pub. L. 99-514, Sec. 1876(p)(1),
redesignated as pars. (4), (5), and (6), respectively, former par.
(3) relating to base period T-bill rate, (4) relating to short
years, and (5) relating to payment and assessment and collection of
interest.
Subsec. (f)(7). Pub. L. 99-514, Sec. 1876(g), added par. (7).
1984 - Subsec. (b)(1)(E). Pub. L. 98-369, Sec. 802(b)(1),
substituted "of the DISC attributable to qualified export receipts
of the DISC for the taxable year which exceed $10,000,000" for "for
the taxable year attributable to base period export gross receipts
(as defined in subsection (e))".
Subsec. (b)(1)(F)(i). Pub. L. 98-369, Sec. 68(d), substituted
"one-seventeenth" for "one/half".
Subsec. (b)(4). Pub. L. 98-369, Sec. 802(b)(2), added par. (4).
Subsec. (e). Pub. L. 98-369, Sec. 802(a)(1), (2), redesignated
subsec. (g) as (e). Former subsec. (e), which related to
definitions and special rules relating to computation of taxable
income attributable to base period export gross receipts, was
struck out.
Subsec. (f). Pub. L. 98-369, Sec. 802(a)(1), (3), added subsec.
(f). Former subsec. (f), which related to small DISCs, was struck
out.
Subsec. (g). Pub. L. 98-369, Sec. 802(a)(2), redesignated subsec.
(g) as (e).
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 703(i)(1), (2),
substituted in subpar. (G) "subsection (d)" for "subsection (D)",
and in provisions following subpar. (G) "income" for "gross income
(taxable income in the case of subparagraph (D))" and "subparagraph
(G)" for "subparagraph (E)".
Subsec. (c)(1). Pub. L. 95-600, Sec. 701(u)(12)(B), inserted
provision relating to application of subpar. (C).
1976 - Subsec. (b)(1)(C). Pub. L. 94-455, Sec. 1901(b)(3)(K),
substituted "ordinary income" for "gain from the sale or exchange
of property which is neither a capital asset nor property described
in section 1231" after "treated as".
Subsec. (b)(1)(D), (E). Pub. L. 94-455, Sec. 1101(a)(1), added
subpars. (D) and (E) and redesignated former subpars. (D) and (E)
as (F) and (G), respectively.
Subsec. (b)(1)(F). Pub. L. 94-455, Secs. 1063(a), 1065(a)(2),
1101(a)(1), redesignated former subpar. (D) as (F), made existing
provision cl. (i), added cls. (ii) and (iii), and substituted "(C),
(D), and (E)" for "(C)" after "(B), and".
Subsec. (b)(1)(G). Pub. L. 94-455, Sec. 1101(a)(1), redesignated
former subpar. (E) as (G).
Subsec. (b)(2)(B). Pub. L. 94-455, Sec. 1101(a)(2), substituted
"more than twice the number" for "more than the number" after "no
case over".
Subsec. (b)(3). Pub. L. 94-455, Sec. 1101(a)(3), added par. (3).
Subsec. (c). Pub. L. 94-455, Sec. 1101(d)(1), redesignated
existing provisions as pars. (1) and (2) and, as redesignated,
added subpar. (1)(C).
Subsec. (d)(5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsecs. (e) to (g). Pub. L. 94-455, Sec. 1101(a)(4), added
subsecs. (e) to (g).
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 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
Section 1012(bb)(6)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to taxable years beginning after December 31, 1987."
Amendment by section 1006(e)(15) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 68(d) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1984, see section 68(e)(1)
of Pub. L. 98-369, set out as a note under section 291 of this
title.
Amendment by section 802(a), (b) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1984, in taxable years ending after
such date, see section 805(a)(1) of Pub. L. 98-369, as amended, set
out as a note under section 245 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 701(u)(12)(C) of Pub. L. 95-600 provided that: "The
amendment made by subparagraph (B) [amending this section] shall
apply to dispositions made after December 31, 1976, in taxable
years ending after such date."
Amendment by section 703(i)(1), (2) of Pub. L. 95-600 effective
on Oct. 4, 1976, see section 703(r) of Pub. L. 95-600, set out as a
note under section 46 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1063(a) of Pub. L. 94-455 applicable to
participation in or cooperation with an international boycott more
than 30 days after Oct. 4, 1976, with special provisions for
existing contracts, see section 1066(a) of Pub. L. 94-455, set out
as a note under section 908 of this title.
Amendment by section 1065(a)(2) of Pub. L. 94-455 applicable to
payments described in section 162(c) of this title made more than
30 days after Oct. 4, 1976, see section 1066(b) of Pub. L. 94-455,
set out as a note under section 952 of this title.
Section 1101(g)(1) of Pub. L. 94-455 provided that: "The
amendments made by subsections (a) and (e) [amending this section
and section 996 of this title] shall apply to taxable years
beginning after December 31, 1975."
Section 1101(g)(4) of Pub. L. 94-455, as amended by Pub. L.
95-600, title VII, Sec. 701(u)(12)(A), Nov. 6, 1978, 92 Stat. 2918,
provided that: "The amendments made by subsection (d) [amending
this section and section 751 of this title] shall apply to sales,
exchanges, or other dispositions after December 31, 1976, in
taxable years ending after such date."
Amendment by section 1901(b)(3)(K) of Pub. L. 94-455 applicable
with respect to 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.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
PRORATION OF BASE PERIOD IN CASE OF FIXED CONTRACTS
Section 1101(g)(5) of Pub. L. 94-455, as amended by Pub. L.
95-600, title VII, Sec. 703(i)(4), Nov. 6, 1978, 92 Stat. 2940;
Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that: "For purposes of determining adjusted base period export
gross receipts (under section 995(e)(3) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954], as amended by this section),
if any DISC has export gross receipts from export property by
reason of paragraph (2) of section 603(b) of the Tax Reduction Act
of 1975, [set out as an Effective Date of 1975 Amendment note under
section 993 of this title], then the export gross receipts of such
DISC for the taxable years of the base period shall be increased by
an amount equal to the amount of gross receipts which were excluded
from export gross receipts during each taxable year of the base
period by reason of the last sentence of section 995(e)(3) of such
Code multiplied by a fraction, the numerator of which is the amount
of the gross receipts in the taxable year which are export gross
receipts by reason of paragraph (2) of section 603(b) of the Tax
Reduction Act of 1975 and the denominator of which is the amount of
total gross receipts which are excluded from export gross receipts
in the taxable year by reason of subparagraph (C) or (D) of
paragraph (2) of section 993(c) (determined without regard to
paragraph (2) of section 603(b) of the Tax Reduction Act of 1975)."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 246, 751, 861, 996, 999,
1014 of this title.
-End-
-CITE-
26 USC Sec. 996 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 IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
Subpart B - Treatment of Distributions to Shareholders
-HEAD-
Sec. 996. Rules for allocation in the case of distributions and
losses
-STATUTE-
(a) Rules for actual distributions and certain deemed distributions
(1) In general
Any actual distribution (other than a distribution described in
paragraph (2) or to which section 995(c) applies) to a
shareholder by a DISC (or former DISC) which is made out of
earnings and profits shall be treated as made -
(A) first, out of previously taxed income, to the extent
thereof,
(B) second, out of accumulated DISC income, to the extent
thereof, and
(C) finally, out of other earnings and profits.
(2) Qualifying distributions
Any actual distribution made pursuant to section 992(c)
(relating to distributions to meet qualification requirements),
and any deemed distribution pursuant to section 995(b)(1)(G)
(relating to foreign investment attributable to producer's
loans), shall be treated as made -
(A) first, out of accumulated DISC income, to the extent
thereof,
(B) second, out of the earnings and profits described in
paragraph (1)(C), to the extent thereof, and
(C) finally, out of previously taxed income.
In the case of any amount of any actual distribution to a C
corporation made pursuant to section 992(c) which is required to
satisfy the condition of section 992(a)(1)(A), the preceding
sentence shall apply to 16/17ths of such amount and paragraph (1)
shall apply to the remaining 1/17th of such amount.
(3) Exclusion from gross income
Amounts distributed out of previously taxed income shall be
excluded by the distributee from gross income except for gains
described in subsection (e)(2), and shall reduce the amount of
the previously taxed income.
(b) Ordering rules for losses
If for any taxable year a DISC, or a former DISC, incurs a
deficit in earnings and profits, such deficit shall be chargeable -
(1) first, to earnings and profits described in subsection
(a)(1)(C), to the extent thereof,
(2) second, to accumulated DISC income, to the extent thereof,
and
(3) finally, to previously taxed income, except that a deficit
in earnings and profits shall not be applied against accumulated
DISC income which has been determined is to be deemed distributed
to the shareholders (pursuant to section 995(b)(2)(A)) as a
result of a revocation of election or other disqualification.
(c) Priority of distributions
Any actual distribution made during a taxable year shall be
treated as being made subsequent to any deemed distribution made
during such year. Any actual distribution made pursuant to section
992(c) (relating to distributions to meet qualification
requirements) shall be treated as being made before any other
actual distributions during the taxable year.
(d) Subsequent effect of previous disposition of DISC stock
(1) Shareholder previously taxed income adjustment
If -
(A) gain with respect to a share of stock of a DISC or former
DISC is treated under section 995(c) as a dividend or as
ordinary income, and
(B) any person subsequently receives an actual distribution
made out of accumulated DISC income, or a deemed distribution
made pursuant to section 995(b)(2), with respect to such share,
such person shall treat such distribution in the same manner as a
distribution from previously taxed income to the extent that (i)
the gain referred to in subparagraph (A), exceeds (ii) any other
amounts with respect to such share which were treated under this
paragraph as made from previously taxed income. In applying this
paragraph with respect to a share of stock in a DISC or former
DISC, gain on the acquisition of such share by the DISC or former
DISC or gain on a transaction prior to such acquisition shall not
be considered gain referred to in subparagraph (A).
(2) Corporate adjustment upon redemption
If section 995(c) applies to a redemption of stock in a DISC or
former DISC, the accumulated DISC income shall be reduced by an
amount equal to the gain described in section 995(c) with respect
to such stock which is (or has been) treated as ordinary income,
except to the extent distributions with respect to such stock
have been treated under paragraph (1).
(e) Adjustment to basis
(1) Additions to basis
Amounts representing deemed distributions as provided in
section 995(b) shall increase the basis of the stock with respect
to which the distribution is made.
(2) Reductions of basis
The portion of an actual distribution made out of previously
taxed income shall reduce the basis of the stock with respect to
which it is made, and to the extent that it exceeds the adjusted
basis of such stock, shall be treated as gain from the sale or
exchange of property. In the case of stock includible in the
gross estate of a decedent for which an election is made under
section 2032 (relating to alternate valuation), this paragraph
shall not apply to any distribution made after the date of the
decedent's death and before the alternate valuation date provided
by section 2032.
(f) Definition of divisions of earnings and profits
For purposes of this part:
(1) DISC income
The earnings and profits derived by a corporation during a
taxable year in which such corporation is a DISC, before
reduction for any distributions during the year, but reduced by
amounts deemed distributed under section 995(b)(1), shall
constitute the DISC income for such year. The earnings and
profits of a DISC for a taxable year include any amounts
includible in such DISC's gross income pursuant to section 951(a)
for such year. Accumulated DISC income shall be reduced by deemed
distributions under section 995(b)(2).
(2) Previously taxed income
Earnings and profits deemed distributed under section 995(b)
for a taxable year shall constitute previously taxed income for
such year.
(3) Other earnings and profits
The earnings and profits for a taxable year which are described
in neither paragraph (1) nor (2) shall constitute the other
earnings and profits for such year.
(g) Effectively connected income
In the case of a shareholder who is a nonresident alien
individual or a foreign corporation, trust, or estate, gains
referred to in section 995(c) and all distributions out of
accumulated DISC income including deemed distributions shall be
treated as gains and distributions which are effectively connected
with the conduct of a trade or business conducted through a
permanent establishment of such shareholder within the United
States and which are derived from sources within the United States.
-SOURCE-
(Added Pub. L. 92-178, title V, Sec. 501 Dec. 10, 1971, 85 Stat.
547; amended Pub. L. 94-455, title XI, Sec. 1101(e), title XIX,
Secs. 1901(b)(3)(I), Oct. 4, 1976, 90 Stat. 1659, 1793; Pub. L.
95-600, title VII, Sec. 703(i)(3), Nov. 6, 1978, 92 Stat. 2940;
Pub. L. 98-369, div. A, title VIII, Sec. 801(d)(10), July 18, 1984,
98 Stat. 997; Pub. L. 99-514, title XVIII, Sec. 1876(k), Oct. 22,
1986, 100 Stat. 2900.)
-MISC1-
AMENDMENTS
1986 - Subsec. (a)(2). Pub. L. 99-514 inserted last sentence and
struck out former last sentence which read as follows: "In the case
of any amount of any actual distribution made pursuant to section
992(c) which is required to satisfy the condition of section
992(a)(1)(A), the preceding sentence shall apply to one-half of
such amount, and paragraph (1) shall apply to the remaining
one-half of such amount."
1984 - Subsec. (g). Pub. L. 98-369 inserted "and which are
derived from sources within the United States".
1978 - Subsec. (a)(2). Pub. L. 95-600 substituted "section
(b)(1)(G)" for "section (b)(1)(E)".
1976 - Subsec. (a)(2). Pub. L. 94-455, Sec. 1101(e), inserted at
end "In the case of any amount of any actual distribution made
pursuant to section 992(c) which is required to satisfy the
condition of section 992(a)(1)(A), the preceding sentence shall
apply to one-half of such amount, and paragraph (1) shall apply to
the remaining one-half of such amount."
Subsec. (d). Pub. L. 94-455, Sec. 1901(b)(3)(I), substituted
"ordinary income" for "gain from the sale or exchange of property
which is not a capital asset" in par. (1)(A) after "dividend or as"
and, in par. (2), after "treated as".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to distributions on or
after June 22, 1984, see section 805(a)(3) of Pub. L. 98-369, as
amended, set out as a note under section 245 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 effective on Oct. 4, 1976, see
section 703(r) of Pub. L. 95-600, set out as a note under section
46 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1101(e) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 1101(g)(1)
of Pub. L. 94-455, set out as a note under section 905 of this
title.
Amendment by section 1901(b)(3)(I) of Pub. L. 94-455 applicable
with respect to 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.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 995, 1014 of this title.
-End-
-CITE-
26 USC Sec. 997 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 IV - DOMESTIC INTERNATIONAL SALES CORPORATIONS
Subpart B - Treatment of Distributions to Shareholders
-HEAD-
Sec. 997. Special subchapter C rules
-STATUTE-
For purposes of applying the provisions of subchapter C of
chapter 1, any distribution in property to a corporation by a DISC
or former DISC which is made out of previously taxed income or
accumulated DISC income shall -
(1) be treated as a distribution in the same amount as if such
distribution of property were made to an individual, and
(2) have a basis, in the hands of the recipient corporation,
equal to the amount determined under paragraph (1).
-SOURCE-
(Added Pub. L. 92-178, title V, Sec. 501, Dec. 10, 1971, 85 Stat.
549.)
-End-
-CITE-
26 USC PART V - INTERNATIONAL BOYCOTT DETERMINATIONS 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 V - INTERNATIONAL BOYCOTT DETERMINATIONS
-HEAD-
PART V - INTERNATIONAL BOYCOTT DETERMINATIONS
-MISC1-
Sec.
999. Reports by taxpayers; determinations.
AMENDMENTS
1976 - Pub. L. 94-455, title X, Sec. 1064(a), Oct. 4, 1976, 90
Stat. 1650, added part heading and analysis of sections.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in section 1373 of this title.
-End-
-CITE-
26 USC Sec. 999 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 V - INTERNATIONAL BOYCOTT DETERMINATIONS
-HEAD-
Sec. 999. Reports by taxpayers; determinations
-STATUTE-
(a) International boycott reports by taxpayers
(1) Report required
If any person, or a member of a controlled group (within the
meaning of section 993(a)(3)) which includes that person, has
operations in, or related to -
(A) a country (or with the government, a company, or a
national of a country) which is on the list maintained by the
Secretary under paragraph (3), or
(B) any other country (or with the government, a company, or
a national of that country) in which such person or such member
had operations during the taxable year if such person (or, if
such person is a foreign corporation, any United States
shareholder of that corporation) knows or has reason to know
that participation in or co-operation with an international
boycott is required as a condition of doing business within
such country or with such government, company, or national,
that person or shareholder (within the meaning of section 951(b))
shall report such operations to the Secretary at such time and in
such manner as the Secretary prescribes, except that in the case
of a foreign corporation such report shall be required only of a
United States shareholder (within the meaning of such section) of
such corporation.
(2) Participation and cooperation; request therefor
A taxpayer shall report whether he, a foreign corporation of
which he is a United States shareholder, or any member of a
controlled group which includes the taxpayer or such foreign
corporation has participated in or cooperated with an
international boycott at any time during the taxable year, or has
been requested to participate in or cooperate with such a
boycott, and, if so, the nature of any operation in connection
with which there was participation in or cooperation with such
boycott (or there was a request to participate or cooperate).
(3) List to be maintained
The Secretary shall maintain and publish not less frequently
than quarterly a current list of countries which require or may
require participation in or cooperation with an international
boycott (within the meaning of subsection (b)(3)).
(b) Participation in or cooperation with an international boycott
(1) General rule
If the person or a member of a controlled group (within the
meaning of section 993(a)(3)) which includes the person
participates in or cooperates with an international boycott in
the taxable year, all operations of the taxpayer or such group in
that country and in any other country which requires
participation in or cooperation with the boycott as a condition
of doing business within that country, or with the government, a
company, or a national of that country, shall be treated as
operations in connection with which such participation or
cooperation occurred, except to the extent that the person can
clearly demonstrate that a particular operation is a clearly
separate and identifiable operation in connection with which
there was no participation in or cooperation with an
international boycott.
(2) Special rule
(A) Nonboycott operations
A clearly separate and identifiable operation of a person, or
of a member of the controlled group (within the meaning of
section 993(a)(3)) which includes that person, in or related to
any country within the group of countries referred to in
paragraph (1) shall not be treated as an operation in or
related to a group of countries associated in carrying out an
international boycott if the person can clearly demonstrate
that he, or that such member, did not participate in or
cooperate with the international boycott in connection with
that operation.
(B) Separate and identifiable operations
A taxpayer may show that different operations within the same
country, or operations in different countries, are clearly
separate and identifiable operations.
(3) Definition of boycott participation and cooperation
For purposes of this section, a person participates in or
cooperates with an international boycott if he agrees -
(A) as a condition of doing business directly or indirectly
within a country or with the government, a company, or a
national of a country -
(i) to refrain from doing business with or in a country
which is the object of the boycott or with the government,
companies, or nationals of that country;
(ii) to refrain from doing business with any United States
person engaged in trade in a country which is the object of
the boycott or with the government, companies, or nationals
of that country;
(iii) to refrain from doing business with any company whose
ownership or management is made up, all or in part, of
individuals of a particular nationality, race, or religion,
or to remove (or refrain from selecting) corporate directors
who are individuals of a particular nationality, race, or
religion; or
(iv) to refrain from employing individuals of a particular
nationality, race, or religion; or
(B) as a condition of the sale of a product to the
government, a company, or a national of a country, to refrain
from shipping or insuring that product on a carrier owned,
leased, or operated by a person who does not participate in or
cooperate with an international boycott (within the meaning of
subparagraph (A)).
(4) Compliance with certain laws
This section shall not apply to any agreement by a person (or
such member) -
(A) to meet requirements imposed by a foreign country with
respect to an international boycott if United States law or
regulations, or an Executive Order, sanctions participation in,
or cooperation with, that international boycott,
(B) to comply with a prohibition on the importation of goods
produced in whole or in part in any country which is the object
of an international boycott, or
(C) to comply with a prohibition imposed by a country on the
exportation of products obtained in such country to any country
which is the object of an international boycott.
(c) International boycott factor
(1) International boycott factor
For purposes of sections 908(a), 941(a)(5), 952(a)(3), and
995(b)(1)(F)(ii), the international boycott factor is a fraction,
determined under regulations prescribed by the Secretary, the
numerator of which reflects the world-wide operations of a person
(or, in the case of a controlled group (within the meaning of
section 993(a)(3)) which includes that person, of the group)
which are operations in or related to a group of countries
associated in carrying out an international boycott in or with
which that person or a member of that controlled group has
participated or cooperated in the taxable year, and the
denominator of which reflects the world-wide operations of that
person or group.
(2) Specifically attributable taxes and income
If the taxpayer clearly demonstrates that the foreign taxes
paid and income earned for the taxable year are attributable to
specific operations, then, in lieu of applying the international
boycott factor for such taxable year, the amount of the credit
disallowed under section 908(a), the addition to subpart F income
under section 952(a)(3), and the amount of deemed distribution
under section 995(b)(1)(F)(ii) for the taxable year, if any,
shall be the amount specifically attributable to the operations
in which there was participation in or cooperation with an
international boycott under section 999(b)(1).
(3) World-wide operations
For purposes of this subsection, the term "world-wide
operations" means operations in or related to countries other
than the United States.
(d) Determination with respect to particular operations
Upon a request made by the taxpayer, the Secretary shall issue a
determination with respect to whether a particular operation of a
person, or of a member of a controlled group which includes that
person, constitutes participation in or cooperation with an
international boycott. The Secretary may issue such a determination
in advance of such operation in cases which are of such a nature
that an advance determination is possible and appropriate under the
circumstances. If the request is made before the operation is
commenced, or before the end of a taxable year in which the
operation is carried out, the Secretary may decline to issue such a
determination before close of the taxable year.
(e) Participation or cooperation by related persons
If a person controls (within the meaning of section 304(c)) a
corporation -
(1) participation in or cooperation with an international
boycott by such corporation shall be presumed to be such
participation or cooperation by such person, and
(2) participation in or cooperation with such a boycott by such
person shall be presumed to be such participation or cooperation
by such corporation.
(f) Willful failure to report
Any person (within the meaning of section 6671(b)) required to
report under this section who willfully fails to make such report
shall, in addition to other penalties provided by law, be fined not
more than $25,000, imprisoned for not more than one year, or both.
-SOURCE-
(Added Pub. L. 94-455, title X, Sec. 1064(a), Oct. 4, 1976, 90
Stat. 1650; amended Pub. L. 95-600, title VII, Sec. 703(h)(2), (3),
Nov. 6, 1978, 92 Stat. 2940; Pub. L. 98-369, div. A, title VIII,
Sec. 802(c)(3), July 18, 1984, 98 Stat. 999; Pub. L. 99-514, title
XVIII, Sec. 1876(p)(3), Oct. 22, 1986, 100 Stat. 2902; Pub. L.
106-519, Sec. 4(5), Nov. 15, 2000, 114 Stat. 2433.)
-MISC1-
AMENDMENTS
2000 - Subsec. (c)(1). Pub. L. 106-519 inserted "941(a)(5),"
after "908(a),".
1986 - Subsec. (c)(1), (2). Pub. L. 99-514 repealed section
802(c)(3) of Pub. L. 98-369 thereby restoring former text. See 1984
Amendment note below.
1984 - Subsec. (c)(1), (2). Pub. L. 98-369 which substituted
"995(b)(1)(F)(i)" for "995(b)(1)(F)(ii)" wherever appearing was
repealed. See 1986 Amendment note above.
1978 - Subsec. (c)(1). Pub. L. 95-600, Sec. 703(h)(2),
substituted "995(b)(1)(F)(ii)" for "995(b)(3)".
Subsec. (c)(2). Pub. L. 95-600, Sec. 703(h)(3), substituted
"995(b)(1)(F)(ii)" for "995(b)(1)(D)(ii)".
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-519 applicable to transactions after
Sept. 30, 2000, with special rules relating to existing foreign
sales corporations, see section 5 of Pub. L. 106-519, set out as an
Effective Date note under section 941 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to transactions after Dec.
31, 1984, in taxable years ending after such date, see section
805(a)(1) of Pub. L. 98-369, as amended, set out as a note under
section 245 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 effective on Oct. 4, 1976, see
section 703(r) of Pub. L. 95-600, set out as a note under section
46 of this title.
EFFECTIVE DATE
Section applicable to participation in or cooperation with an
international boycott more than 30 days after Oct. 4, 1976, with
special provisions for existing contracts, see section 1066(a) of
Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note
under section 908 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
REPORTS BY THE SECRETARY
Pub. L. 94-455, title X, Sec. 1067, Oct. 4, 1976, 90 Stat. 1654,
as amended by Pub. L. 98-369, div. A, title IV, Sec. 441(c), July
18, 1984, 98 Stat. 815, which required the Secretary to transmit a
report every four years to the Committee on Ways and Means of the
House of Representatives and to the Committee on Finance of the
Senate relating to reports filed under section 999(a) of this title
and describing the administration of provisions relating to
international boycott activity, terminated, effective May 15, 2000,
pursuant to section 3003 of Pub. L. 104-66, as amended, set out as
a note under section 1113 of Title 31, Money and Finance. See,
also, page 141 of House Document No. 103-7.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 908, 941, 952, 995 of
this title.
-End-
-CITE-
26 USC Sec. 1000 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 V - INTERNATIONAL BOYCOTT DETERMINATIONS
-HEAD-
[Sec. 1000. Reserved]
-STATUTE-
-End-
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