TITLE 26 - US CODE - PART II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

Subpart A - Nonresident Alien Individuals

26 USC 871 - Tax on nonresident alien individuals

(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,

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(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.

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(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, § 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 recipients country of residence grants a substantially equivalent exclusion to residents and citizens of the United States; or
(B) the recipients 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 Secretarys 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.
(D) Dividends paid by a foreign corporation which are treated under section 861 (a)(2)(B) as income from sources within the United States.
(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) Exemption for certain dividends of regulated investment companies 

(1) Interest-related dividends 

(A) In general 
Except as provided in subparagraph (B), no tax shall be imposed under paragraph (1)(A) of subsection (a) on any interest-related dividend received from a regulated investment company.
(B) Exceptions 
Subparagraph (A) shall not apply
(i) to any interest-related dividend received from a regulated investment company by a person to the extent such dividend is attributable to interest (other than interest described in subparagraph (E)(i) or (iii)) received by such company on indebtedness issued by such person or by any corporation or partnership with respect to which such person is a 10-percent shareholder,
(ii) to any interest-related dividend with respect to stock of a regulated investment company unless the person who would otherwise be required to deduct and withhold tax from such dividend under chapter 3 receives a statement (which meets requirements similar to the requirements of subsection (h)(5)) that the beneficial owner of such stock is not a United States person, and
(iii) to any interest-related dividend paid to any person within a foreign country (or any interest-related dividend payment addressed to, or for the account of, persons within such foreign country) during any period described in subsection (h)(6) with respect to such country.

Clause (iii) shall not apply to any dividend with respect to any stock which was acquired on or before the date of the publication of the Secretarys determination under subsection (h)(6).

(C) Interest-related dividend 
For purposes of this paragraph, the term interest-related dividend means any dividend (or part thereof) which is designated by the regulated investment company as an interest-related dividend in a written notice mailed to its shareholders not later than 60 days after the close of its taxable year. If the aggregate amount so designated with respect to a taxable year of the company (including amounts so designated with respect to dividends paid after the close of the taxable year described in section 855) is greater than the qualified net interest income of the company for such taxable year, the portion of each distribution which shall be an interest-related dividend shall be only that portion of the amounts so designated which such qualified net interest income bears to the aggregate amount so designated. Such term shall not include any dividend with respect to any taxable year of the company beginning after December 31, 2007.
(D) Qualified net interest income 
For purposes of subparagraph (C), the term qualified net interest income means the qualified interest income of the regulated investment company reduced by the deductions properly allocable to such income.
(E) Qualified interest income 
For purposes of subparagraph (D), the term qualified interest income means the sum of the following amounts derived by the regulated investment company from sources within the United States:
(i) Any amount includible in gross income as original issue discount (within the meaning of section 1273) on an obligation payable 183 days or less from the date of original issue (without regard to the period held by the company).
(ii) Any interest includible in gross income (including amounts recognized as ordinary income in respect of original issue discount or market discount or acquisition discount under part V of subchapter P and such other amounts as regulations may provide) on an obligation which is in registered form; except that this clause shall not apply to
(I) any interest on an obligation issued by a corporation or partnership if the regulated investment company is a 10-percent shareholder in such corporation or partnership, and
(II) any interest which is treated as not being portfolio interest under the rules of subsection (h)(4).
(iii) Any interest referred to in subsection (i)(2)(A) (without regard to the trade or business of the regulated investment company).
(iv) Any interest-related dividend includable in gross income with respect to stock of another regulated investment company.
(F) 10-percent shareholder 
For purposes of this paragraph, the term 10-percent shareholder has the meaning given such term by subsection (h)(3)(B).
(2) Short-term capital gain dividends 

(A) In general 
Except as provided in subparagraph (B), no tax shall be imposed under paragraph (1)(A) of subsection (a) on any short-term capital gain dividend received from a regulated investment company.
(B) Exception for aliens taxable under subsection (a)(2) 
Subparagraph (A) shall not apply in the case of any nonresident alien individual subject to tax under subsection (a)(2).
(C) Short-term capital gain dividend 
For purposes of this paragraph, the term short-term capital gain dividend means any dividend (or part thereof) which is designated by the regulated investment company as a short-term capital gain dividend in a written notice mailed to its shareholders not later than 60 days after the close of its taxable year. If the aggregate amount so designated with respect to a taxable year of the company (including amounts so designated with respect to dividends paid after the close of the taxable year described in section 855) is greater than the qualified short-term gain of the company for such taxable year, the portion of each distribution which shall be a short-term capital gain dividend shall be only that portion of the amounts so designated which such qualified short-term gain bears to the aggregate amount so designated. Such term shall not include any dividend with respect to any taxable year of the company beginning after December 31, 2007.
(D) Qualified short-term gain 
For purposes of subparagraph (C), the term qualified short-term gain means the excess of the net short-term capital gain of the regulated investment company for the taxable year over the net long-term capital loss (if any) of such company for such taxable year. For purposes of this subparagraph
(i) the net short-term capital gain of the regulated investment company shall be computed by treating any short-term capital gain dividend includible in gross income with respect to stock of another regulated investment company as a short-term capital gain, and
(ii) the excess of the net short-term capital gain for a taxable year over the net long-term capital loss for a taxable year (to which an election under section 4982 (e)(4) does not apply) shall be determined without regard to any net capital loss or net short-term capital loss attributable to transactions after October 31 of such year, and any such net capital loss or net short-term capital loss shall be treated as arising on the 1st day of the next taxable year.

To the extent provided in regulations, clause (ii) shall apply also for purposes of computing the taxable income of the regulated investment company.

(E) Certain distributions 
In the case of a distribution to which section 897 does not apply by reason of the second sentence of section 897 (h)(1), the amount which would be treated as a short-term capital gain dividend to the shareholder (without regard to this subparagraph)
(i) shall not be treated as a short-term capital gain dividend, and
(ii) shall be included in such shareholders gross income as a dividend from the regulated investment company.
(l) 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.
[1] See References in Text note below.

26 USC 872 - Gross income

(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) Income derived from wagering transactions in certain parimutuel pools 
Gross income derived by a nonresident alien individual from a legal wagering transaction initiated outside the United States in a parimutuel pool with respect to a live horse race or dog race in the United States.
(6) 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.
(7) 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.
(8) 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.

26 USC 873 - Deductions

(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).

26 USC 874 - Allowance of deductions and credits

(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.

26 USC 875 - Partnerships; beneficiaries of estates and trusts

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.

26 USC 876 - Alien residents of Puerto Rico, Guam, American Samoa, or the Northern Mariana Islands

(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.

26 USC 877 - Expatriation to avoid tax

(a) Treatment of expatriates 

(1) In general 
Every nonresident alien individual to whom this section applies and who, within the 10-year period immediately preceding the close of the taxable year, lost United States citizenship 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) Individuals subject to this section 
This section shall apply to any individual 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 $124,000,
(B) the net worth of the individual as of such date is $2,000,000 or more, or
(C) such individual fails to certify under penalty of perjury that he has met the requirements of this title for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require.

In the case of the loss of United States citizenship in any calendar year after 2004, such $124,000 amount 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 2003 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) Exceptions 

(1) In general 
Subparagraphs (A) and (B) of subsection (a)(2) shall not apply to an individual described in paragraph (2) or (3).
(2) Dual citizens 

(A) In general 
An individual is described in this paragraph 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, and
(ii) the individual has had no substantial contacts with the United States.
(B) Substantial contacts 
An individual shall be treated as having no substantial contacts with the United States only if the individual
(i) was never a resident of the United States (as defined in section 7701 (b)),
(ii) has never held a United States passport, and
(iii) was not present in the United States for more than 30 days during any calendar year which is 1 of the 10 calendar years preceding the individuals loss of United States citizenship.
(3) Certain minors 
An individual is described in this paragraph if
(A) the individual became at birth a citizen of the United States,
(B) neither parent of such individual was a citizen of the United States at the time of such birth,
(C) the individuals loss of United States citizenship occurs before such individual attains age 181/2, and
(D) the individual was not present in the United States for more than 30 days during any calendar year which is 1 of the 10 calendar years preceding the individuals loss of United States citizenship.
(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 individuals 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 individuals 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.
(g) Physical presence 

(1) In general 
This section shall not apply to any individual to whom this section would otherwise apply for any taxable year during the 10-year period referred to in subsection (a) in which such individual is physically present in the United States at any time on more than 30 days in the calendar year ending in such taxable year, and such individual shall be treated for purposes of this title as a citizen or resident of the United States, as the case may be, for such taxable year.
(2) Exception 

(A) In general 
In the case of an individual described in any of the following subparagraphs of this paragraph, a day of physical presence in the United States shall be disregarded if the individual is performing services in the United States on such day for an employer. The preceding sentence shall not apply if
(i) such employer is related (within the meaning of section 267 and 707) to such individual, or
(ii) such employer fails to meet such requirements as the Secretary may prescribe by regulations to prevent the avoidance of the purposes of this paragraph.

Not more than 30 days during any calendar year may be disregarded under this subparagraph.

(B) Individuals with ties to other countries 
An individual is described in this subparagraph if
(i) the individual becomes (not later than the close of a reasonable period after loss of United States citizenship or termination of residency) a citizen or resident of the country in which
(I) such individual was born,
(II) if such individual is married, such individuals spouse was born, or
(III) either of such individuals parents were born, and
(ii) the individual becomes fully liable for income tax in such country.
(C) Minimal prior physical presence in the United States 
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 or termination of residency, the individual was physically present in the United States for 30 days or less. The rule of section 7701 (b)(3)(D) shall apply for purposes of this subparagraph.
[1] So in original. Probably should be followed by “section”.

26 USC 878 - Foreign educational, charitable, and certain other exempt organizations

For special provisions relating to foreign educational, charitable, and other exempt organizations, see sections 512 (a) and 4948.

26 USC 879 - Tax treatment of certain community income in the case of nonresident alien individuals

(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 partners 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 partners 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).

Subpart B - Foreign Corporations

26 USC 881 - Tax on income of foreign corporations not connected with United States business

(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 possessions 

(1) Guam, American Samoa, the Northern Mariana Islands, and the Virgin Islands 
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) Commonwealth of Puerto Rico 

(A) In general 
If dividends are received during a taxable year by a corporation
(i) created or organized in, or under the law of, the Commonwealth of Puerto Rico, and
(ii) with respect to which the requirements of subparagraphs (A), (B), and (C) of paragraph (1) are met for the taxable year,

subsection (a) shall be applied for such taxable year by substituting 10 percent for 30 percent.

(B) Applicability 
If, on or after the date of the enactment of this paragraph, an increase in the rate of the Commonwealth of Puerto Ricos withholding tax which is generally applicable to dividends paid to United States corporations not engaged in a trade or business in the Commonwealth to a rate greater than 10 percent takes effect, this paragraph shall not apply to dividends received on or after the effective date of the increase.
(3) 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) Tax not to apply to certain dividends of regulated investment companies 

(1) Interest-related dividends 

(A) In general 
Except as provided in subparagraph (B), no tax shall be imposed under paragraph (1) of subsection (a) on any interest-related dividend (as defined in section 871 (k)(1)) received from a regulated investment company.
(B) Exception 
Subparagraph (A) shall not apply
(i) to any dividend referred to in section 871 (k)(1)(B), and
(ii) to any interest-related dividend received by a controlled foreign corporation (within the meaning of section 957 (a)) to the extent such dividend is attributable to interest received by the regulated investment company from a person who is a related person (within the meaning of section 864 (d)(4)) with respect to such controlled foreign corporation.
(C) Treatment of dividends received by controlled foreign corporations 
The rules of subsection (c)(5)(A) shall apply to any interest-related dividend received by a controlled foreign corporation (within the meaning of section 957 (a)) to the extent such dividend is attributable to interest received by the regulated investment company which is described in clause (ii) of section 871 (k)(1)(E) (and not described in clause (i) or (iii) of such section).
(2) Short-term capital gain dividends 
No tax shall be imposed under paragraph (1) of subsection (a) on any short-term capital gain dividend (as defined in section 871 (k)(2)) received from a regulated investment company.
(f) 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).

26 USC 882 - Tax on income of foreign corporations connected with United States business

(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.
[1] Par. (3) heading editorially supplied.

26 USC 883 - Exclusions from gross income

(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 (6), (7), and (8) 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.

26 USC 884 - Branch profits tax

(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 corporations 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) (as in effect before their repeal by the FSC Repeal and Extraterritorial Income Exclusion Act of 2000),
(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 corporations 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 taxpayers U.S. assets and other adjustments in such determination as are necessary or appropriate to carry out the purposes of this section.

26 USC 885 - Cross references

(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.

Subpart C - Tax on Gross Transportation Income

26 USC 887 - Imposition of tax on gross transportation income of nonresident aliens and foreign corporations

(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 individuals or corporations 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.

Subpart D - Miscellaneous Provisions

26 USC 891 - Doubling of rates of tax on citizens and corporations of certain foreign countries

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.

26 USC 892 - Income of foreign governments and of international organizations

(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.

26 USC 893 - Compensation of employees of foreign governments or international organizations

(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.

26 USC 894 - Income affected by treaty

(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.

26 USC 895 - Income derived by a foreign central bank of issue from obligations of the United States or from bank deposits

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.

26 USC 896 - Adjustment of tax on nationals, residents, and corporations of certain foreign countries

(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.

26 USC 897 - Disposition of investment in United States real property

(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 individuals alternative minimum taxable income (as defined in section 55 (b)(2)) for the taxable year, or
(ii) the individuals 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, § 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 certain investment entities 
For purposes of this section
(1) Look-through of distributions 
Any distribution by a qualified investment entity to a nonresident alien individual, a foreign corporation, or other qualified investment entity shall, to the extent attributable to gain from sales or exchanges by the qualified investment entity of United States real property interests, be treated as gain recognized by such nonresident alien individual, foreign corporation, or other qualified investment entity from the sale or exchange of a United States real property interest. Notwithstanding the preceding sentence, any distribution by a qualified investment entity to a nonresident alien individual or a foreign corporation with respect to any class of stock which is regularly traded on an established securities market located in the United States shall not be treated as gain recognized from the sale or exchange of a United States real property interest if such individual or corporation did not own more than 5 percent of such class of stock at any time during the 1-year period ending on the date of such distribution.
(2) Sale of stock in domestically controlled entity not taxed 
The term United States real property interest does not include any interest in a domestically controlled qualified investment entity.
(3) Distributions by domestically controlled qualified investment entities 
In the case of a domestically controlled qualified investment entity, rules similar to the rules of subsection (d) shall apply to the foreign ownership percentage of any gain.
(4) Definitions 

(A) Qualified investment entity 

(i) In general The term qualified investment entity means
(I) any real estate investment trust, and
(II) any regulated investment company which is a United States real property holding corporation or which would be a United States real property holding corporation if the exceptions provided in subsections (c)(3) and (h)(2) did not apply to interests in any real estate investment trust or regulated investment company.
(ii) Termination Clause (i)(II) shall not apply after December 31, 2007. Notwithstanding the preceding sentence, an entity described in clause (i)(II) shall be treated as a qualified investment entity for purposes of applying paragraphs (1) and (5) and section 1445 with respect to any distribution by the entity to a nonresident alien individual or a foreign corporation which is attributable directly or indirectly to a distribution to the entity from a real estate investment trust.
(B) Domestically controlled 
The term domestically controlled qualified investment entity means any qualified investment entity 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 qualified investment entity 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 qualified investment entity was in existence.
(5) Treatment of certain wash sale transactions 

(A) In general 
If an interest in a domestically controlled qualified investment entity is disposed of in an applicable wash sale transaction, the taxpayer shall, for purposes of this section, be treated as having gain from the sale or exchange of a United States real property interest in an amount equal to the portion of the distribution described in subparagraph (B) with respect to such interest which, but for the disposition, would have been treated by the taxpayer as gain from the sale or exchange of a United States real property interest under paragraph (1).
(B) Applicable wash sales transaction 
For purposes of this paragraph
(i) In general The term applicable wash sales transaction means any transaction (or series of transactions) under which a nonresident alien individual, foreign corporation, or qualified investment entity
(I) disposes of an interest in a domestically controlled qualified investment entity during the 30-day period preceding the ex-dividend date of a distribution which is to be made with respect to the interest and any portion of which, but for the disposition, would have been treated by the taxpayer as gain from the sale or exchange of a United States real property interest under paragraph (1), and
(II) acquires, or enters into a contract or option to acquire, a substantially identical interest in such entity during the 61-day period beginning with the 1st day of the 30-day period described in subclause (I).

For purposes of subclause (II), a nonresident alien individual, foreign corporation, or qualified investment entity shall be treated as having acquired any interest acquired by a person related (within the meaning of section 267 (b) or 707 (b)(1)) to the individual, corporation, or entity, and any interest which such person has entered into any contract or option to acquire.

(ii) Application to substitute dividend and similar payments Subparagraph (A) shall apply to
(I) any substitute dividend payment (within the meaning of section 861), or
(II) any other similar payment specified in regulations which the Secretary determines necessary to prevent avoidance of the purposes of this paragraph.

The portion of any such payment treated by the taxpayer as gain from the sale or exchange of a United States real property interest under subparagraph (A) by reason of this clause shall be equal to the portion of the distribution such payment is in lieu of which would have been so treated but for the transaction giving rise to such payment.

(iii) Exception where distribution actually received A transaction shall not be treated as an applicable wash sales transaction if the nonresident alien individual, foreign corporation, or qualified investment entity receives the distribution described in clause (i)(I) with respect to either the interest which was disposed of, or acquired, in the transaction.
(iv) Exception for certain publicly traded stock A transaction shall not be treated as an applicable wash sales transaction if it involves the disposition of any class of stock in a qualified investment entity which is regularly traded on an established securities market within the United States but only if the nonresident alien individual, foreign corporation, or qualified investment entity did not own more than 5 percent of such class of stock at any time during the 1-year period ending on the date of the distribution described in clause (i)(I).
(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.

26 USC 898 - Taxable year of certain foreign corporations

(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 treated as a controlled foreign corporation for any purpose under subpart F of part III of this subchapter, 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 shall apply in determining ownership.
(3) United States shareholder 
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).
(c) Determination of required year 

(1) In general 
The required year is
(A) the majority U.S. shareholder year, or
(B) if there is no majority U.S. shareholder year, the taxable year prescribed under regulations.
(2) 1-month deferral allowed 
A specified foreign corporation may elect, in lieu of the taxable year under paragraph (1)(A), a taxable year beginning 1 month earlier than the majority U.S. shareholder year.
(3) Majority U.S. shareholder year 

(A) 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 clause (i) whose stock was treated as owned under subsection (b)(2)(B) by any shareholder described in such clause.
(B) Testing day 
The testing days shall be
(i) the first day of the corporations taxable year (determined without regard to this section), or
(ii) the days during such representative period as the Secretary may prescribe.