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26 U.S.C. § 865 — Source rules for personal property sales
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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Source file: Laws/federal/codes/united-states-code/title-26/section-865-source-rules-for-personal-property-sales--4b305e8482.md
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Source location: Title 26, Chapter 1, § 865; chapter-001-normal-taxes-and-surtaxes.md
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**(a) General rule** Except as otherwise provided in this section, income from the sale of personal property—
(1) by a United States resident shall be sourced in the United States, or
(2) by a nonresident shall be sourced outside the United States.
**(b) Exception for inventory property** In the case of income derived from the sale of inventory property—
(1) this section shall not apply, and
(2) such income shall be sourced under the rules of sections 861(a)(6), 862(a)(6), and 863.
Notwithstanding the preceding sentence, any income from the sale of any unprocessed timber which is a softwood and was cut from an area in the United States shall be sourced in the United States and the rules of sections 862(a)(6) and 863(b) shall not apply to any such income. For purposes of the preceding sentence, the term “unprocessed timber” means any log, cant, or similar form of timber.
**(c) Exception for depreciable personal property**
(1) **In general** — Gain (not in excess of the depreciation adjustments) from the sale of depreciable personal property shall be allocated between sources in the United States and sources outside the United States—
(A) by treating the same proportion of such gain as sourced in the United States as the United States depreciation adjustments with respect to such property bear to the total depreciation adjustments, and
(B) by treating the remaining portion of such gain as sourced outside the United States.
(2) **Gain in excess of depreciation** — Gain (in excess of the depreciation adjustments) from the sale of depreciable personal property shall be sourced as if such property were inventory property.
(3) **United States depreciation adjustments** — For purposes of this subsection—
(A) *In general* — The term “United States depreciation adjustments” means the portion of the depreciation adjustments to the adjusted basis of the property which are attributable to the depreciation deductions allowable in computing taxable income from sources in the United States.
(B) *Special rule for certain property* — Except in the case of property of a kind described in section 168(g)(4), if, for any taxable year—
(i) such property is used predominantly in the United States, or
(ii) such property is used predominantly outside the United States,
all of the depreciation deductions allowable for such year shall be treated as having been allocated to income from sources in the United States (or, where clause (ii) applies, from sources outside the United States).
(4) **Other definitions** — For purposes of this subsection—
(A) *Depreciable personal property* — The term “depreciable personal property” means any personal property if the adjusted basis of such property includes depreciation adjustments.
(B) *Depreciation adjustments* — The term “depreciation adjustments” means adjustments reflected in the adjusted basis of any property on account of depreciation deductions (whether allowed with respect to such property or other property and whether allowed to the taxpayer or to any other person).
(C) *Depreciation deductions* — The term “depreciation deductions” means any deductions for depreciation or amortization or any other deduction allowable under any provision of this chapter which treats an otherwise capital expenditure as a deductible expense.
**(d) Exception for intangibles**
(1) **In general** — In the case of any sale of an intangible—
(A) this section shall apply only to the extent the payments in consideration of such sale are not contingent on the productivity, use, or disposition of the intangible, and
(B) to the extent such payments are so contingent, the source of such payments shall be determined under this part in the same manner as if such payments were royalties.
(2) **Intangible** — For purposes of paragraph (1), the term “intangible” means any patent, copyright, secret process or formula, goodwill, trademark, trade brand, franchise, or other like property.
(3) **Special rule in the case of goodwill** — To the extent this section applies to the sale of goodwill, payments in consideration of such sale shall be treated as from sources in the country in which such goodwill was generated.
(4) **Coordination with subsection (c)**
(A) *Gain not in excess of depreciation adjustments sourced under subsection (c)* — Notwithstanding paragraph (1), any gain from the sale of an intangible shall be sourced under subsection (c) to the extent such gain does not exceed the depreciation adjustments with respect to such intangible.
(B) *Subsection (c)(2) not to apply to intangibles* — Paragraph (2) of subsection (c) shall not apply to any gain from the sale of an intangible.
**(e) Special rules for sales through offices or fixed places of business**
(1) **Sales by residents**
(A) *In general* — In the case of income not sourced under subsection (b), (c), (d)(1)(B) or (3), or (f), if a United States resident maintains an office or other fixed place of business in a foreign country, income from sales of personal property attributable to such office or other fixed place of business shall be sourced outside the United States.
(B) *Tax must be imposed* — Subparagraph (A) shall not apply unless an income tax equal to at least 10 percent of the income from the sale is actually paid to a foreign country with respect to such income.
(2) **Sales by nonresidents**
(A) *In general* — Notwithstanding any other provisions of this part, if a nonresident maintains an office or other fixed place of business in the United States, income from any sale of personal property (including inventory property) attributable to such office or other fixed place of business shall be sourced in the United States. The preceding sentence shall not apply for purposes of section 971 (defining export trade corporation).
(B) *Exception* — Subparagraph (A) shall not apply to any sale of inventory property which is sold for use, disposition, or consumption outside the United States if an office or other fixed place of business of the taxpayer in a foreign country materially participated in the sale.
(3) **Sales attributable to an office or other fixed place of business** — The principles of section 864(c)(5) shall apply in determining whether a taxpayer has an office or other fixed place of business and whether a sale is attributable to such an office or other fixed place of business.
**(f) Stock of affiliates** If—
(1) a United States resident sells stock in an affiliate which is a foreign corporation,
(2) such sale occurs in a foreign country in which such affiliate is engaged in the active conduct of a trade or business, and
(3) more than 50 percent of the gross income of such affiliate for the 3-year period ending with the close of such affiliate’s taxable year immediately preceding the year in which the sale occurred was derived from the active conduct of a trade or business in such foreign country,
any gain from such sale shall be sourced outside the United States. For purposes of paragraphs (2) and (3), the United States resident may elect to treat an affiliate and all other corporations which are wholly owned (directly or indirectly) by the affiliate as one corporation.
**(g) United States resident; nonresident** For purposes of this section—
(1) **In general** — Except as otherwise provided in this subsection—
(A) *United States resident* — The term “United States resident” means—
(i) any individual who—
(I) is a United States citizen or a resident alien and does not have a tax home (as defined in section 911(d)(3)) in a foreign country, or
(II) is a nonresident alien and has a tax home (as so defined) in the United States, and
(ii) any corporation, trust, or estate which is a United States person (as defined in section 7701(a)(30)).
(B) *Nonresident* — The term “nonresident” means any person other than a United States resident.
(2) **Special rules for United States citizens and resident aliens** — For purposes of this section, a United States citizen or resident alien shall not be treated as a nonresident with respect to any sale of personal property unless an income tax equal to at least 10 percent of the gain derived from such sale is actually paid to a foreign country with respect to that gain.
(3) **Special rule for certain stock sales by residents of Puerto Rico** — Paragraph (2) shall not apply to the sale by an individual who was a bona fide resident of Puerto Rico during the entire taxable year of stock in a corporation if—
(A) such corporation is engaged in the active conduct of a trade or business in Puerto Rico, and
(B) more than 50 percent of its gross income for the 3-year period ending with the close of such corporation’s taxable year immediately preceding the year in which such sale occurred was derived from the active conduct of a trade or business in Puerto Rico.
For purposes of the preceding sentence, the taxpayer may elect to treat a corporation and all other corporations which are wholly owned (directly or indirectly) by such corporation as one corporation.
**(h) Treatment of gains from sale of certain stock or intangibles and from certain liquidations**
(1) **In general** — In the case of gain to which this subsection applies—
(A) such gain shall be sourced outside the United States, but
(B) subsections (a), (b), and (c) of section 904 and sections 907 and 960 shall be applied separately with respect to such gain.
(2) **Gain to which subsection applies** — This subsection shall apply to—
(A) *Gain from sale of certain stock or intangibles* — Any gain—
(i) which is from the sale of stock in a foreign corporation or an intangible (as defined in subsection (d)(2)) and which would otherwise be sourced in the United States under this section,
(ii) which, under a treaty obligation of the United States (applied without regard to this section), would be sourced outside the United States, and
(iii) with respect to which the taxpayer chooses the benefits of this subsection.
(B) *Gain from liquidation in possession* — Any gain which is derived from the receipt of any distribution in liquidation of a corporation—
(i) which is organized in a possession of the United States, and
(ii) more than 50 percent of the gross income of which during the 3-taxable year period ending with the close of the taxable year immediately preceding the taxable year in which the distribution is received is from the active conduct of a trade or business in such possession.
**(i) Other definitions** For purposes of this section—
(1) **Inventory property** — The term “inventory property” means personal property described in paragraph (1) of section 1221(a).
(2) **Sale includes exchange** — The term “sale” includes an exchange or any other disposition.
(3) **Treatment of possessions** — Any possession of the United States shall be treated as a foreign country.
(4) **Affiliate** — The term “affiliate” means a member of the same affiliated group (within the meaning of section 1504(a) without regard to section 1504(b)).
(5) **Treatment of partnerships** — In the case of a partnership, except as provided in regulations, this section shall be applied at the partner level.
**(j) Regulations** The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purpose of this section, including regulations—
(1) relating to the treatment of losses from sales of personal property,
(2) applying the rules of this section to income derived from trading in futures contracts, forward contracts, options contracts, and other instruments, and
(3) providing that, subject to such conditions (which may include provisions comparable to section 877) as may be provided in such regulations, subsections (e)(1)(B) and (g)(2) shall not apply for purposes of sections 931 and 933.
**(k) Cross references**
(1) For provisions relating to the characterization as dividends for source purposes of gains from the sale of stock in certain foreign corporations, see section 1248.
(2) For sourcing of income from certain foreign currency transactions, see section 988.
Cross-references
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Allowance of credit**
(1) **In general** — In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter the amount of the qualified adoption expenses paid or incurred by the taxpayer.
(2) **Year credit allowed** — The credit under paragraph (1) with respect to any expense shall be allowed—
(A) in the case of any expense paid or incurred before the taxable year in which such adoption becomes final, for the taxable year following the taxable year during which such expense is paid or incurred, and
(B) in the case of an expense paid or incurred during or after the taxable year in which such adoption becomes final, for the taxable year in which such expense is paid or incurred.
(3) **$10,000 credit for adoption of child with special needs regardless of expenses** — In the case of an adoption of a child with special needs which becomes final during a taxable year, the taxpayer shall be treated as having paid during such year qualified adoption expenses with respect to such adoption in an amount equal to the excess (if any) of $10,000 over the aggregate qualified adoption expenses actually paid or incurred by the taxpayer with respect to such adoption during such taxable year and all prior taxable years.
(4) **Portion of credit refundable** — So much of the credit allowed under paragraph (1) as does not exceed $5,000 shall be treated as a credit allowed under subpart C and not as a credit allowed under this subpart.
**(b) Limitations**
(1) **Dollar limitation** — The aggregate amount of qualified adoption expenses which may be taken into account under subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed $10,000.
(2) **Income limitation**
(A) *In general* —
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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) Allowance of deduction**
(1) **General rule** — There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.
(2) **Corporations on accrual basis** — In the case of a corporation reporting its taxable income on the accrual basis, if—
(A) the board of directors authorizes a charitable contribution during any taxable year, and
(B) payment of such contribution is made after the close of such taxable year and on or before the 15th day of the fourth month following the close of such taxable year,
then the taxpayer may elect to treat such contribution as paid during such taxable year. The election may be made only at the time of the filing of the return for such taxable year, and shall be signified in such manner as the Secretary shall by regulations prescribe.
(3) **Future interests in tangible personal property** — For purposes of this section, payment of a charitable contribution which consists of a future interest in tangible personal property shall be treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those standing in a relationship to the taxpayer described in section 267(b) or 707(b). For purposes of the preceding sentence, a fixture which is intended to be severed from the real property shall be treated as tangible personal property.
**(b) Percentage limitations**
(1) **Individuals** — In the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagra
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Federal law — U.S. Code and appendices · legal_authorities
If a domestic corporation chooses to have the benefits of subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year, an amount equal to the taxes deemed to be paid by such corporation under subsections (a) and (d) of section 960 (determined without regard to the phrase “90 percent of” in subsection (d)(1) thereof) for such taxable year shall be treated for purposes of this title (other than sections 245 and 245A) as a dividend received by such domestic corporation from the foreign corporation.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Gross income from sources without United States** The following items of gross income shall be treated as income from sources without the United States:
(1) interest other than that derived from sources within the United States as provided in section 861(a)(1);
(2) dividends other than those derived from sources within the United States as provided in section 861(a)(2);
(3) compensation for labor or personal services performed without the United States;
(4) rentals or royalties from property located without the United States or from any interest in such property, including rentals or royalties for the use of or for the privilege of using without the United States patents, copyrights, secret processes and formulas, good will, trade-marks, trade brands, franchises, and other like properties;
(5) gains, profits, and income from the sale or exchange of real property located without the United States;
(6) gains, profits, and income derived from the purchase of inventory property (within the meaning of section 865(i)(1)) within the United States and its sale or exchange without the United States;
(7) underwriting income other than that derived from sources within the United States as provided in section 861(a)(7);
(8) gains, profits, and income from the disposition of a United States real property interest (as defined in section 897(c)) when the real property is located in the Virgin Islands; and
(9) amounts received, directly or indirectly, from a foreign person for the provision of a guarantee of indebtedness of such person other than amounts which are derived from sources within the United States as provided in section 861(a)(9).
**(b) Taxable income from sources without United States** From the items of gross income specified in subsection (a) there shall
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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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Federal law — U.S. Code and appendices · legal_authorities
**(a) Produced** For purposes of this part, the term “produced” includes created, fabricated, manufactured, extracted, processed, cured, or aged.
**(b) Trade or business within the United States** For purposes of this part, part II, and chapter 3, the term “trade or business within the United States” includes the performance of personal services within the United States at any time within the taxable year, but does not include—
(1) **Performance of personal services for foreign employer** — The performance of personal services—
(A) for a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in trade or business within the United States, or
(B) for an office or place of business maintained in a foreign country or in a possession of the United States by an individual who is a citizen or resident of the United States or by a domestic partnership or a domestic corporation,
by a nonresident alien individual temporarily present in the United States for a period or periods not exceeding a total of 90 days during the taxable year and whose compensation for such services does not exceed in the aggregate $3,000.
(2) **Trading in securities or commodities**
(A) *Stocks and securities*
(i) *In general* — Trading in stocks or securities through a resident broker, commission agent, custodian, or other independent agent.
(ii) *Trading for taxpayer’s own account* — Trading in stocks or securities for the taxpayer’s own account, whether by the taxpayer or his employees or through a resident broker, commission agent, custodian, or other agent, and whether or not any such employee or agent has discretionary authority to make decisions in effecting the transactions. This clause shall not apply in the case of a dealer in stocks or sec
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Federal law — U.S. Code and appendices · legal_authorities
**(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 subsection (b) or (c) of section 631,
(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
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Federal law — U.S. Code and appendices · legal_authorities
**(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 busin
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