26 U.S.C. § 971 — Definitions

Page 2222 TITLE 26—INTERNAL REVENUE CODE § 971 income’ means with respect to an export trade cor- poration the amount by which— ‘‘(A) the sum of the amount by which the subpart F income of such corporation was reduced for the taxable year and all prior taxable years under sec- tion 970(a) and the amounts not included in subpart F income (determined without regard to subpart G of subchapter N of chapter 1) for all prior taxable years by reason of the application of section 972, ex- ceeds ‘‘(B) the sum of the amounts which were included in the gross income of the shareholders of such cor- poration under [former] section 951(a)(1)(A)(ii) and under the provision of [former] section 970(b) for all prior taxable years, determined without regard to the transfer of property described in paragraph (1) of this subsection. ‘‘(3) SPECIAL CASES.—If the provisions of paragraph (1) of this subsection are not applicable solely be- cause the export trade corporation or the DISC, or both, are not owned in the manner prescribed in such paragraph, the provisions shall nevertheless be appli- cable in such cases to the extent, and in accordance with such rules, as may be prescribed by the Sec- retary or his delegate. ‘‘(4) TREATMENT OF EXPORT TRADE ASSETS.—If the provisions of this subsection are applicable, accounts receivable held by an export trade corporation and transferred to a DISC, to the extent such receivables were export trade assets in the hands of the export trade corporation, shall be treated as qualified export assets for purposes of section 993(b).’’ § 971. Definitions (a) Export trade corporations For purposes of this subpart, the term ‘‘export trade corporation’’ means— (1) In general A controlled foreign corporation (as defined in section 957) which satisfies the following conditions: (A) 90 percent or more of the gross income of such corporation for the 3–year period im- mediately preceding the close of the taxable year (or such part of such period subsequent to the effective date of this subpart during which the corporation was in existence) was derived from sources without the United States, and (B) 75 percent or more of the gross income of such corporation for such period con- stituted gross income in respect of which such corporation derived export trade in- come. (2) Special rule If 50 percent or more of the gross income of a controlled foreign corporation in the period specified in subsection (a)(1)(A) is gross in- come in respect of which such corporation de- rived export trade income in respect of agri- cultural products grown in the United States, it may qualify as an export trade corporation although it does not meet the requirements of subsection (a)(1)(B). (3) Limitation No controlled foreign corporation may qual- ify as an export trade corporation for any tax- able year beginning after October 31, 1971, un- less it qualified as an export trade corporation for any taxable year beginning before such date. If a corporation fails to qualify as an ex- port trade corporation for a period of any 3 consecutive taxable years beginning after such date, it may not qualify as an export trade corporation for any taxable year beginning after such period. (b) Export trade income For the purposes of this subpart, the term ‘‘ex- port trade income’’ means net income from— (1) the sale to an unrelated person for use, consumption, or disposition outside the United States of export property (as defined in subsection (e)), or from commissions, fees, compensation, or other income from the per- formance of commercial, industrial, financial, technical, scientific, managerial, engineering, architectural, skilled, or other services in re- spect to such sales or in respect of the instal- lation or maintenance of such export property; (2) commissions, fees, compensation, or other income from commercial, industrial, fi- nancial, technical, scientific, managerial, en- gineering, architectural, skilled, or other serv- ices performed in connection with the use by an unrelated person outside the United States of patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property acquired or developed and owned by the manufacturer, producer, grower, or extractor of export prop- erty in respect of which the export trade cor- poration earns export trade income under paragraph (1); (3) commissions, fees, rentals, or other com- pensation or income attributable to the use of export property by an unrelated person or at- tributable to the use of export property in the rendition of technical, scientific, or engineer- ing services to an unrelated person; and (4) interest from export trade assets de- scribed in subsection (c)(4). For purposes of paragraph (3), if a controlled for- eign corporation receives income from an unre- lated person attributable to the use of export property in the rendition of services to such un- related person together with income attrib- utable to the rendition of other services to such unrelated person, including personal services, the amount of such aggregate income which shall be considered to be attributable to the use of the export property shall (if such amount can- not be established by reference to transactions between unrelated persons) be that part of such aggregate income which the cost of the export property consumed in the rendition of such serv- ices (including a reasonable allowance for depre- ciation) bears to the total costs and expenses at- tributable to such aggregate income. (c) Export trade assets For purposes of this subpart, the term ‘‘export trade assets’’ means— (1) working capital reasonably necessary for the production of export trade income, (2) inventory of export property held for use, consumption, or disposition outside the United States, (3) facilities located outside the United States for the storage, handling, transpor- tation, packaging, or servicing of export prop- erty, and (4) evidences of indebtedness executed by persons, other than related persons, in connec- Page 2223 TITLE 26—INTERNAL REVENUE CODE § 982 tion with payment for purchases of export property for use, consumption, or disposition outside the United States, or in connection with the payment for services described in subsections (b)(2) and (3). (d) Export promotion expenses For purposes of this subpart, the term ‘‘export promotion expenses’’ means the following ex- penses paid or incurred in the receipt or produc- tion of export trade income— (1) a reasonable allowance for salaries or other compensation for personal services actu- ally rendered for such purpose, (2) rentals or other payments for the use of property actually used for such purpose, (3) a reasonable allowance for the exhaus- tion, wear and tear, or obsolescence of prop- erty actually used for such purpose, and (4) any other ordinary and necessary ex- penses of the corporation to the extent reason- ably allocable to the receipt or production of export trade income. No expense incurred within the United States shall be treated as an export promotion expense within the meaning of the preceding sentence, unless at least 90 percent of each category of ex- penses described in such sentence is incurred outside the United States. (e) Export property For purposes of this subpart, the term ‘‘export property’’ means any property or any interest in property manufactured, produced, grown, or ex- tracted in the United States. (f) Unrelated person For purposes of this subpart, the term ‘‘unre- lated person’’ means a person other than a re- lated person as defined in section 954(d)(3). (Added Pub. L. 87–834, § 12(a), Oct. 16, 1962, 76 Stat. 1029; amended Pub. L. 92–178, title V, § 505(c), Dec. 10, 1971, 85 Stat. 553.) Editorial Notes AMENDMENTS 1971—Subsec. (a)(3). Pub. L. 92–178 added par. (3). Statutory Notes and Related Subsidiaries TREATMENT OF CERTAIN FORMER EXPORT TRADE CORPORATIONS Pub. L. 99–514, title XVIII, § 1876(m), Oct. 22, 1986, 100 Stat. 2901, provided that: ‘‘If— ‘‘(1) a corporation which is not an export trading corporation for its most recent taxable year ending before the date of the enactment of the Tax Reform Act of 1984 [July 18, 1984] but was an export trading corporation for any prior taxable year, and ‘‘(2)(A) such corporation may not qualify as an ex- port trade corporation for any taxable year beginning after December 31, 1984, by reason of section 971(a)(3) of the Internal Revenue Code of 1954 [now 1986], or (B) such corporation makes an election, before the date 6 months after the date of the enactment of this Act [Oct. 22, 1986], not to be treated as an export trade corporation with respect to taxable years beginning after December 31, 1984, rules similar to the rules of paragraphs (2) and (4) of section 805(b) of the Tax Reform Act of 1984 [set out as a note under section 991 of this title] shall apply to such corporation. For purposes of the preceding sen- tence, the term ‘export trade corporation’ has the meaning given such term by section 971 of such Code.’’ [§ 972. Repealed. Pub. L. 94–455, title XIX, § 1901(a)(120), Oct. 4, 1976, 90 Stat. 1784] Section, Pub. L. 87–834, § 12(a), Oct. 16, 1962, 76 Stat. 1031, related to the consolidation of a group of export trade corporations for treatment as a single controlled foreign corporation for tax purposes. [SUBPART H—REPEALED] [§ 981. Repealed. Pub. L. 94–455, title X, § 1012(b)(2), Oct. 4, 1976, 90 Stat. 1614] Section, Pub. L. 89–809, title I, § 105(e)(1), Nov. 13, 1966, 80 Stat. 1565, related to income of certain nonresident United States citizens subject to foreign community property laws. SUBPART I—ADMISSIBILITY OF DOCUMENTATION MAINTAINED IN FOREIGN COUNTRIES Sec. 982. Admissibility of documentation maintained in foreign countries. Editorial Notes AMENDMENTS 1982—Pub. L. 97–248, title III, § 337(a), Sept. 3, 1982, 96 Stat. 629, added subpart I and item 982. § 982. Admissibility of documentation maintained in foreign countries (a) General rule If the taxpayer fails to substantially comply with any formal document request arising out of the examination of the tax treatment of any item (hereinafter in this section referred to as the ‘‘examined item’’) before the 90th day after the date of the mailing of such request on mo- tion by the Secretary, any court having jurisdic- tion of a civil proceeding in which the tax treat- ment of the examined item is an issue shall pro- hibit the introduction by the taxpayer of any foreign-based documentation covered by such re- quest. (b) Reasonable cause exception (1) In general Subsection (a) shall not apply with respect to any documentation if the taxpayer estab- lishes that the failure to provide the docu- mentation as requested by the Secretary is due to reasonable cause. (2) Foreign nondisclosure law not reasonable cause For purposes of paragraph (1), the fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the requested doc- umentation is not reasonable cause. (c) Formal document request For purposes of this section— (1) Formal document request The term ‘‘formal document request’’ means any request (made after the normal request procedures have failed to produce the re- quested documentation) for the production of foreign-based documentation which is mailed by registered or certified mail to the taxpayer at his last known address and which sets forth—