26 U.S.C. § 862 — Income from sources without the United

Page 2033 TITLE 26—INTERNAL REVENUE CODE § 862 ‘‘(1) IN GENERAL.—This section shall apply to tax- able years beginning after August 13, 1983, and on or before August 1, 1986. ‘‘(2) SPECIAL RULE.—If the taxpayer’s 4th taxable year beginning after August 13, 1981, is not described in paragraph (1), this section shall apply also to such 4th taxable year.’’ CONFORMITY OF AMENDMENTS MADE BY FOREIGN INVES- TORS TAX ACT OF 1966 WITH TREATY OBLIGATIONS OF THE UNITED STATES Pub. L. 89–809, title I, § 110, Nov. 13, 1966, 80 Stat. 1575, provided that: ‘‘No amendment made by this title [see Short Title note above] shall apply in any case where its application would be contrary to any treaty obliga- tion of the United States. For purposes of the preceding sentence, the extension of a benefit provided by any amendment made by this title shall not be deemed to be contrary to a treaty obligation of the United States.’’ § 862. Income from sources without the United States (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 serv- ices performed without the United States; (4) rentals or royalties from property located without the United States or from any inter- est in such property, including rentals or roy- alties for the use of or for the privilege of using without the United States patents, copy- rights, 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 de- rived from sources within the United States as provided in section 861(a)(7); (8) gains, profits, and income from the dis- position of a United States real property in- terest (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 sec- tion 861(a)(9). (b) Taxable income from sources without United States From the items of gross income specified in subsection (a) there shall be deducted the ex- penses, losses, and other deductions properly ap- portioned or allocated thereto, and a ratable part of any expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income. The remainder, if any, shall be treated in full as taxable income from sources without the United States. In the case of an individual who does not itemize de- ductions, an amount equal to the standard de- duction shall be considered a deduction which cannot definitely be allocated to some item or class of gross income. (Aug. 16, 1954, ch. 736, 68A Stat. 276; Pub. L. 92–178, title III, § 314(b), Dec. 10, 1971, 85 Stat. 528; Pub. L. 94–455, title X, § 1036(b), title XIX, § 1901(b)(26)(C), Oct. 4, 1976, 90 Stat. 1633, 1798; Pub. L. 95–30, title I, § 102(b)(10), May 23, 1977, 91 Stat. 138; Pub. L. 97–34, title VIII, § 831(a)(2), Aug. 13, 1981, 95 Stat. 352; Pub. L. 99–514, title I, § 104(b)(12), title XII, § 1211(b)(1)(C), Oct. 22, 1986, 100 Stat. 2105, 2536; Pub. L. 100–647, title I, § 1012(e)(4), Nov. 10, 1988, 102 Stat. 3500; Pub. L. 101–239, title VII, § 7811(i)(2), Dec. 19, 1989, 103 Stat. 2409; Pub. L. 111–240, title II, § 2122(b), Sept. 27, 2010, 124 Stat. 2568.) Editorial Notes AMENDMENTS 2010—Subsec. (a)(9). Pub. L. 111–240 added par. (9). 1989—Subsec. (a)(6). Pub. L. 101–239 substituted ‘‘865(i)(1)’’ for ‘‘865(h)(1)’’. 1988—Subsec. (c). Pub. L. 100–647 repealed subsec. (c) which read as follows: ‘‘(c) CROSS REFERENCE.—For source of amounts at- tributable to certain aircraft and vessels, see section 861(e).’’ 1986—Subsec. (a)(6). Pub. L. 99–514, § 1211(b)(1)(C), sub- stituted ‘‘inventory property (within the meaning of section 865(h)(1))’’ for ‘‘personal property’’. Subsec. (b). Pub. L. 99–514, § 104(b)(12), substituted ‘‘the standard deduction’’ for ‘‘the zero bracket amount’’. 1981—Subsec. (a)(8). Pub. L. 97–34 added par. (8). 1977—Subsec. (b). Pub. L. 95–30 provided that, in the case of an individual who does not itemize deductions, an amount equal to the zero bracket amount shall be considered a deduction which cannot definitely be allo- cated to some item or class of gross income. 1976—Subsec. (a)(5), (6). Pub. L. 94–455, § 1901(b)(26)(C), inserted ‘‘or exchange’’ after ‘‘sale’’. Subsec. (a)(7). Pub. L. 94–455, § 1036(b), added par. (7). 1971—Subsec. (c). Pub. L. 92–178 added subsec. (c). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2010 AMENDMENT Amendment by Pub. L. 111–240 applicable to guaran- tees issued after Sept. 27, 2010, see section 2122(d) of Pub. L. 111–240, set out as a note under section 861 of this title. EFFECTIVE DATE OF 1989 AMENDMENT Amendment by Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 104(b)(12) of Pub. L. 99–514 ap- plicable to taxable years beginning after Dec. 31, 1986, 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 contrary to any treaty ob- ligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amendment relates, see section 1012(aa)(3), (4) of Pub. L. 100–647, set out as a note under section 861 of this title. QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDI- TURES; ALLOCATION AND APPORTIONMENT; DEFINI- TIONS; SPECIAL RULES; EFFECTIVE DATES For allocation and apportionment of qualified re- search and experimental expenditures for purposes of sections 861 to 863 of this title, see section 4009 of Pub. L. 100–647, set out as a note under section 861 of this title. 1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF RESEARCH AND EXPERIMENTAL EX- PENDITURES For rule governing allocation under subsec. (b) of this section of amounts allowable as a deduction for quali- fied research and experimental expenditures during taxable years beginning after Aug. 1, 1986, and on or be- fore Aug. 1, 1987, see section 1216 of Pub. L. 99–514, set out as a note under section 861 of this title. ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL EXPENDITURES For purposes of subsec. (b) of this section, all amounts allowable as a deduction for qualified research and experimental expenditures are to be allocated to income from sources within the United States and de- ducted from such income in determining the amount of taxable income from sources within the United States for taxable years beginning after Aug. 13, 1983, and on or before Aug. 1, 1986, see section 126 of Pub. L. 98–369, set out as a note under section 861 of this title. § 863. Special rules for determining source (a) Allocation under regulations Items of gross income, expenses, losses, and deductions, other than those specified in sec- tions 861(a) and 862(a), shall be allocated or ap- portioned 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 there- from) 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 re- mainder, if any, shall be included in full as tax- able 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 there- to and a ratable part of any expenses, losses, or other deductions which cannot definitely be al- located to some item or class of gross income; and the portion of such taxable income attrib- utable to sources within the United States may be determined by processes or formulas of gen- eral 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 with- out 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 de- scribed in paragraph (2) shall be allocated and apportioned between sources within and without the United States solely on the basis of the pro- duction 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.