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26 U.S.C. § 863 — Special rules for determining source
Federal law — U.S. Code and appendices · legal_authorities
**(a) Allocation under regulations** Items of gross income, expenses, losses, and deductions, other than those specified in sections 861(a) and 862(a), shall be allocated or apportioned to sources within or without the United States, under regulations prescribed by the Secretary. Where items of gross income are separately allocated to sources within the United States, there shall be deducted (for the purpose of computing the taxable income therefrom) the expenses, losses, and other deductions properly apportioned or allocated thereto and a ratable part of other expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in full as taxable income from sources within the United States.
**(b) Income partly from within and partly from without the United States** In the case of gross income derived from sources partly within and partly without the United States, the taxable income may first be computed by deducting the expenses, losses, or other deductions apportioned or allocated thereto and a ratable part of any expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income; and the portion of such taxable income attributable to sources within the United States may be determined by processes or formulas of general apportionment prescribed by the Secretary. Gains, profits, and income—
(1) from services rendered partly within and partly without the United States,
(2) from the sale or exchange of inventory property (within the meaning of section 865(i)(1)) produced (in whole or in part) by the taxpayer within and sold or exchanged without the United States, or produced (in whole or in part) by the taxpayer without and sold or exch
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Source file: Laws/federal/codes/united-states-code/title-26/section-863-special-rules-for-determining-source--811459a450.md
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Source location: Title 26, Chapter 1, § 863; chapter-001-normal-taxes-and-surtaxes.md
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**(a) Allocation under regulations** Items of gross income, expenses, losses, and deductions, other than those specified in sections 861(a) and 862(a), shall be allocated or apportioned to sources within or without the United States, under regulations prescribed by the Secretary. Where items of gross income are separately allocated to sources within the United States, there shall be deducted (for the purpose of computing the taxable income therefrom) the expenses, losses, and other deductions properly apportioned or allocated thereto and a ratable part of other expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in full as taxable income from sources within the United States.
**(b) Income partly from within and partly from without the United States** In the case of gross income derived from sources partly within and partly without the United States, the taxable income may first be computed by deducting the expenses, losses, or other deductions apportioned or allocated thereto and a ratable part of any expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income; and the portion of such taxable income attributable to sources within the United States may be determined by processes or formulas of general apportionment prescribed by the Secretary. Gains, profits, and income—
(1) from services rendered partly within and partly without the United States,
(2) from the sale or exchange of inventory property (within the meaning of section 865(i)(1)) produced (in whole or in part) by the taxpayer within and sold or exchanged without the United States, or produced (in whole or in part) by the taxpayer without and sold or exchanged within the United States, or
(3) derived from the purchase of inventory property (within the meaning of section 865(i)(1)) within a possession of the United States and its sale or exchange within the United States,
shall be treated as derived partly from sources within and partly from sources without the United States. Gains, profits, and income from the sale or exchange of inventory property described in paragraph (2) shall be allocated and apportioned between sources within and without the United States solely on the basis of the production activities with respect to the property.
**(c) Source rule for certain transportation income**
(1) **Transportation beginning and ending in the United States** — All transportation income attributable to transportation which begins and ends in the United States shall be treated as derived from sources within the United States.
(2) **Other transportation having United States connection**
(A) *In general* — 50 percent of all transportation income attributable to transportation which—
(i) is not described in paragraph (1), and
(ii) begins or ends in the United States,
shall be treated as from sources in the United States.
(B) *Special rule for personal service income* — Subparagraph (A) shall not apply to any transportation income which is income derived from personal services performed by the taxpayer, unless such income is attributable to transportation which—
(i) begins in the United States and ends in a possession of the United States, or
(ii) begins in a possession of the United States and ends in the United States.
In the case of transportation income derived from, or in connection with, a vessel, this subparagraph shall only apply if the taxpayer is a citizen or resident alien.
(3) **Transportation income** — For purposes of this subsection, the term “transportation income” means any income derived from, or in connection with—
(A) the use (or hiring or leasing for use) of a vessel or aircraft, or
(B) the performance of services directly related to the use of a vessel or aircraft.
For purposes of the preceding sentence, the term “vessel or aircraft” includes any container used in connection with a vessel or aircraft.
**(d) Source rules for space and certain ocean activities**
(1) **In general** — Except as provided in regulations, any income derived from a space or ocean activity—
(A) if derived by a United States person, shall be sourced in the United States, and
(B) if derived by a person other than a United States person, shall be sourced outside the United States.
(2) **Space or ocean activity** — For purposes of paragraph (1)—
(A) *In general* — The term “space or ocean activity” means—
(i) any activity conducted in space, and
(ii) any activity conducted on or under water not within the jurisdiction (as recognized by the United States) of a foreign country, possession of the United States, or the United States.
Such term includes any activity conducted in Antarctica.
(B) *Exception for certain activities* — The term “space or ocean activity” shall not include—
(i) any activity giving rise to transportation income (as defined in section 863(c)),
(ii) any activity giving rise to international communications income (as defined in subsection (e)(2)), and
(iii) any activity with respect to mines, oil and gas wells, or other natural deposits to the extent within the United States or any foreign country or possession of the United States (as defined in section 638).
For purposes of applying section 638, the jurisdiction of any foreign country shall not include any jurisdiction not recognized by the United States.
**(e) International communications income**
(1) **Source rules**
(A) *United States persons* — In the case of any United States person, 50 percent of any international communications income shall be sourced in the United States and 50 percent of such income shall be sourced outside the United States.
(B) *Foreign persons*
(i) *In general* — Except as provided in regulations or clause (ii), in the case of any person other than a United States person, any international communications income shall be sourced outside the United States.
(ii) *Special rule for income attributable to office or fixed place of business in the United States* — In the case of any person (other than a United States person) who maintains an office or other fixed place of business in the United States, any international communications income attributable to such office or other fixed place of business shall be sourced in the United States.
(2) **Definition** — For purposes of this section, the term “international communications income” includes all income derived from the transmission of communications or data from the United States to any foreign country (or possession of the United States) or from any foreign country (or possession of the United States) to the United States.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Gross income from sources within United States** The following items of gross income shall be treated as income from sources within the United States:
(1) **Interest** — Interest from the United States or the District of Columbia, and interest on bonds, notes, or other interest-bearing obligations of noncorporate residents or domestic corporations not including—
(A) interest—
(i) on deposits with a foreign branch of a domestic corporation or a domestic partnership if such branch is engaged in the commercial banking business, and
(ii) on amounts satisfying the requirements of subparagraph (B) of section 871(i)(3) which are paid by a foreign branch of a domestic corporation or a domestic partnership, and
(B) in the case of a foreign partnership, which is predominantly engaged in the active conduct of a trade or business outside the United States, any interest not paid by a trade or business engaged in by the partnership in the United States and not allocable to income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States.
(2) **Dividends** — The amount received as dividends—
(A) from a domestic corporation, or
(B) from a foreign corporation unless less than 25 percent of the gross income from all sources of such foreign corporation for the 3-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence) was effectively connected (or treated as effectively connected other than income described in section 884(d)(2)) with the conduct of a trade or business within the United States; but only in an amount which bears the same ratio to such dividends as the gross in
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000.
**(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000.
**(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50
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Federal law — U.S. Code and appendices · legal_authorities
**(a)** When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof—
(1) **Person** — The term “person” shall be construed to mean an+d include an individual, a trust, estate, partnership, association, company or corporation.
(2) **Partnership and partner** — The term “partnership” includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a trust or estate or a corporation; and the term “partner” includes a member in such a syndicate, group, pool, joint venture, or organization.
(3) **Corporation** — The term “corporation” includes associations, joint-stock companies, and insurance companies.
(4) **Domestic** — The term “domestic” when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations.
(5) **Foreign** — The term “foreign” when applied to a corporation or partnership means a corporation or partnership which is not domestic.
(6) **Fiduciary** — The term “fiduciary” means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person.
(7) **Stock** — The term “stock” includes shares in an association, joint-stock company, or insurance company.
(8) **Shareholder** — The term “shareholder” includes a member in an association, joint-stock company, or insurance company.
(9) **United States** — The term “United States” when used in a geographical sense includes only the States and the District of Columb
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Except as otherwise provided in this section, income from the sale of personal property—
(1) by a United States resident shall be sourced in the United States, or
(2) by a nonresident shall be sourced outside the United States.
**(b) Exception for inventory property** In the case of income derived from the sale of inventory property—
(1) this section shall not apply, and
(2) such income shall be sourced under the rules of sections 861(a)(6), 862(a)(6), and 863.
Notwithstanding the preceding sentence, any income from the sale of any unprocessed timber which is a softwood and was cut from an area in the United States shall be sourced in the United States and the rules of sections 862(a)(6) and 863(b) shall not apply to any such income. For purposes of the preceding sentence, the term “unprocessed timber” means any log, cant, or similar form of timber.
**(c) Exception for depreciable personal property**
(1) **In general** — Gain (not in excess of the depreciation adjustments) from the sale of depreciable personal property shall be allocated between sources in the United States and sources outside the United States—
(A) by treating the same proportion of such gain as sourced in the United States as the United States depreciation adjustments with respect to such property bear to the total depreciation adjustments, and
(B) by treating the remaining portion of such gain as sourced outside the United States.
(2) **Gain in excess of depreciation** — Gain (in excess of the depreciation adjustments) from the sale of depreciable personal property shall be sourced as if such property were inventory property.
(3) **United States depreciation adjustments** — For purposes of this subsection—
(A) *In general* — The term “United States depreciation
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Definition of surviving spouse**
(1) **In general** — For purposes of section 1, the term “surviving spouse” means a taxpayer—
(A) whose spouse died during either of his two taxable years immediately preceding the taxable year, and
(B) who maintains as his home a household which constitutes for the taxable year the principal place of abode (as a member of such household) of a dependent (i) who (within the meaning of section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) is a son, stepson, daughter, or stepdaughter of the taxpayer, and (ii) with respect to whom the taxpayer is entitled to a deduction for the taxable year under section 151.
(2) **Limitations** — Notwithstanding paragraph (1), for purposes of section 1 a taxpayer shall not be considered to be a surviving spouse—
(A) if the taxpayer has remarried at any time before the close of the taxable year, or
(B) unless, for the taxpayer’s taxable year during which his spouse died, a joint return could have been made under the provisions of section 6013 (without regard to subsection (a)(3) thereof).
(3) **Special rule where deceased spouse was in missing status** — If an individual was in a missing status (within the meaning of section 6013(f)(3)) as a result of service in a combat zone (as determined for purposes of section 112) and if such individual remains in such status until the date referred to in subparagraph (A) or (B), then, for purposes of paragraph (1)(A), the date on which such individual died shall be treated as the earlier of the date determined under subparagraph (A) or the date determined under subparagraph (B):
(A) the date on which the determination is made under [section 556 of title 37](https://uscode.house.gov/view.xhtml?req=granuleid:
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Imposition of tax** In the case of any nonresident alien individual or foreign corporation, there is hereby imposed for each taxable year a tax equal to 4 percent of such individual’s or corporation’s United States source gross transportation income for such taxable year.
**(b) United States source gross transportation income**
(1) **In general** — Except as provided in paragraphs (2) and (3), the term “United States source gross transportation income” means any gross income which is transportation income (as defined in section 863(c)(3)) to the extent such income is treated as from sources in the United States under section 863(c)(2). To the extent provided in regulations, such term does not include any income of a kind to which an exemption under paragraph (1) or (2) of section 883(a) would not apply.
(2) **Exception for certain income effectively connected with business in the United States** — The term “United States source gross transportation income” shall not include any income taxable under section 871(b) or 882.
(3) **Exception for certain income taxable in possessions** — The term “United States source gross transportation income” does not include any income taxable in a possession of the United States under the provisions of this title as made applicable in such possession.
(4) **Determination of effectively connected income** — For purposes of this chapter, United States source gross transportation income of any taxpayer shall not be treated as effectively connected with the conduct of a trade or business in the United States unless—
(A) the taxpayer has a fixed place of business in the United States involved in the earning of United States source gross transportation income, and
(B) substantially all of the United States source gross transp
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Federal law — U.S. Code and appendices · legal_authorities
**(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
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Federal law — U.S. Code and appendices · legal_authorities
**(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 o
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Federal law — U.S. Code and appendices · legal_authorities
Page 2034
TITLE 26—INTERNAL REVENUE CODE
§ 863
see section 151(a) of Pub. L. 99–514, set out as a note
under section 1 of this title.
Amendment by section 1211(b)(1)(C) of Pub. L. 99–514
applicable to taxable years beginning after Dec. 31,
1986, except as otherwise provided, see section 1211(c) of
Pub. L. 99–514, set out as an Effective Date note under
section 865 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97–34 applicable to disposi-
tions after June 18, 1980, in taxable years ending after
such date, see section 831(i) of Pub. L. 97–34, set out as
a note under section 897 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95–30 applicable to taxable
years beginning after Dec. 31, 1976, see section 106(a) of
Pub. L. 95–30, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1036(b) of Pub. L. 94–455 appli-
cable to taxable years beginning after Dec. 31, 1976, see
section 1036(c) of Pub. L. 94–455, set out as a note under
section 861 of this title.
Amendment by section 1901(b)(26)(C) of Pub. L. 94–455
effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94–455, set out as a note
under section 2 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Amendment by Pub. L. 92–178 applicable to taxable
years ending after Aug. 15, 1971, but only with respect
to leases entered into after such date, see section 314(c)
of Pub. L. 92–178, set out as a note under section 861 of
this title.
APPLICABILITY
OF CERTAIN AMENDMENTS
BY PUB. L.
99–514
IN
RELATION
TO
TREATY
OBLIGATIONS
OF
UNITED STATES
For
nonapplication
of
amendment
by
section
1211(b)(1)(C) of Pub. L. 99–514 to the extent application
of such amendment would be
Source: Supplied 2024 U.S. Code historical extraction · 26 U.S.C. § 863
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