§882 — Tax on income of foreign corporations connected with United States business
20 citing cases
Statute Text — 26 U.S.C. §882
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, or 59A,11 So in original. The comma probably should not appear. on its taxable income which is effectively connected with the conduct of a trade or business within the United States.
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.
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.
In the case of a foreign corporation, except where the context clearly indicates otherwise, gross income includes only—
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
gross income which is effectively connected with the conduct of a trade or business within the United States.
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.
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.
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.
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.
For rule that certain foreign taxes are not to be taken into account in determining deduction or credit, see section 906(b)(1).
A foreign corporation which during the taxable year derives any income—
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
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.
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).
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—
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
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.
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.
Treasury Regulations
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Treas. Reg. §1.882-0Table of contents
This section lists captions contained in §§ 1.882-1, 1.882-2, 1.882-3, 1.882-4 and 1.882-5.
(a) Segregation of income.
(b) Imposition of tax.
(1) Income not effectively connected with the conduct of a trade or business in the United States.
(2) Income effectively connected with the conduct of a trade or business in the United States.
(i) In general.
(ii) Determination of taxable income.
(iii) Cross references.
(c) Change in trade or business status.
(d) Credits against tax.
(e) Payment of estimated tax.
(f) Effective date.
(a) Election as to real property income.
(b) Interest on U.S. obligations received by banks organized in possessions.
(c) Treatment of income.
(d) Effective date.
(a) In general.
(1) Inclusions.
(2) Exchange transactions.
(3) Exclusions.
(b) Foreign corporations not engaged in U.S. business.
(c) Foreign corporations engaged in U.S. business.
(d) Effective date.
(a) Foreign corporations.
(1) In general.
(2) Return necessary.
(3) Filing deadline for return.
(4) Return by Internal Revenue Service.
(b) Allowed deductions and credits.
(1) In general.
(2) Verification.
(a)(1) Overview.
(i) In general.
(ii) Direct allocations.
(A) In general.
(B) Partnership interests.
(2) Coordination with tax treaties.
(3) Limitation on interest expense.
(4) Translation convention for foreign currency.
(5) Coordination with other sections.
(6) Special rule for foreign governments.
(7) Elections under § 1.882-5.
(i) In general.
(ii) Failure to make the proper election.
(iii) Step 2 special election for banks.
(8) Examples.
(b) Step 1: Determination of total value of U.S. assets for the taxable year.
(1) Classification of an asset as a U.S. asset.
(i) General rule.
(ii) Items excluded from the definition of U.S. asset.
(iii) Items included in the definition of U.S. asset.
(iv) Interbranch transactions.
(v) Assets acquired to increase U.S. assets artificially.
(2) Determination of the value of a U.S. asset.
(i) General rule.
(ii) Fair-market value election.
(A) In general.
(B) Adjustment to partnership basis.
(iii) Reduction of total value of U.S. assets by amount of bad debt reserves under section 585.
(A) In general.
(B) Example.
(3) Computation of total value of U.S. assets.
(i) General rule.
(ii) Adjustment to basis of financial instruments.
(c) Step 2: Determination of total amount of U.S.-connected liabilities for the taxable year.
(1) General rule.
(2) Computation of the actual ratio.
(i) In general.
(ii) Classification of items.
(iii) Determination of amount of worldwide liabilities.
(iv) Determination of value of worldwide assets.
(v) Hedging transactions.
(vi) Treatment of partnership interests and liabilities.
(vii) Computation of actual ratio of insurance companies.
(viii) Interbranch transactions.
(ix) Amounts must be expressed in a single currency.
(3) Adjustments.
(4) Elective fixed ratio method of determining U.S. liabilities.
(5) Examples.
(d) Step 3: Determination of amount of interest expense allocable to ECI under the adjusted U.S. booked liabilities method.
(1) General rule.
(2) U.S. booked liabilities.
(i) In general.
(ii) Properly reflected on the books of the U.S. trade or business of a foreign corporation that is not a bank.
(A) In general.
(B) Identified liabilities not properly reflected.
(iii) Properly reflected on the books of the U.S. trade or business of a foreign corporation that is a bank.
(A) In general.
(B) Inadvertent error.
(iv) Liabilities of insurance companies.
(v) Liabilities used to increase artificially interest expense on U.S. booked liabilities.
(vi) Hedging transactions.
(vii) Amount of U.S. booked liabilities of a partner.
(viii) Interbranch transactions.
(3) Average total amount of U.S. booked liabilities.
(4) Interest expense where U.S. booked liabilities equal or exceed U.S. liabilities.
(i) In general.
(ii) Scaling ratio.
(iii) Special rules for insurance companies.
(5) U.S.-connected interest rate where U.S. booked liabilities are less than U.S.-connected liabilities.
(i) In general.
(ii) Interest rate on excess U.S.-connected liabilities.
(A) General rule.
(B) Annual published rate election.
(6) Examples.
(e) Separate currency pools method.
(1) General rule.
(i) Determine the value of U.S. assets in each currency pool.
(ii) Determine the U.S.-connected liabilities in each currency pool.
(iii) Determine the interest expense attributable to each currency pool.
(2) Prescribed interest rate.
(3) Hedging transactions.
(4) Election not available if excessive hyperinflationary assets.
(5) Examples.
(f) Effective date.
(1) General rule.
(2) Special rules for financial products.
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Treas. Reg. §1.882-0(a)§1.882-0(a)
(1) Overview.
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Treas. Reg. §1.882-0(b)Step 1: Determination of total value of U.
Step 1: Determination of total value of U.S. assets for the taxable year.
(1) Classification of an asset as a U.S. asset.
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Treas. Reg. §1.882-0(c)Step 2: Determination of total amount of U.
Step 2: Determination of total amount of U.S.-connected liabilities for the taxable year.
(1) General rule.
(2) Computation of the actual ratio.
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Treas. Reg. §1.882-0(d)Step 3: Determination of amount of interest expense allocable to ECI under the adjusted U.
Step 3: Determination of amount of interest expense allocable to ECI under the adjusted U.S. booked liabilities method.
(1) General rule.
(2) U.S. booked liabilities.
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Treas. Reg. §1.882-0(e)Separate currency pools method.
Separate currency pools method.
(1) General rule.
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Treas. Reg. §1.882-0(f)Effective date.
Effective date.
(1) General rule.
(2) Special rules for financial products.
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Treas. Reg. §1.882-0(i)Determine the value of U.
Determine the value of U.S. assets in each currency pool.
(ii) Determine the U.S.-connected liabilities in each currency pool.
(iii) Determine the interest expense attributable to each currency pool.
(2) Prescribed interest rate.
(3) Hedging transactions.
(4) Election not available if excessive hyperinflationary assets.
(5) Examples.
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Treas. Reg. §1.882-0(v)Liabilities used to increase artificially interest expense on U.
Liabilities used to increase artificially interest expense on U.S. booked liabilities.
(vi) Hedging transactions.
(vii) Amount of U.S. booked liabilities of a partner.
(viii) Interbranch transactions.
(3) Average total amount of U.S. booked liabilities.
(4) Interest expense where U.S. booked liabilities equal or exceed U.S. liabilities.
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Treas. Reg. §1.882-1Taxation of foreign corporations engaged in U.S. business or of foreign corporations treated as having effectively connected income
(a) Segregation of income. This section applies for purposes of determining the tax of a foreign corporation which at any time during the taxable year is engaged in trade or business in the United States. It also applies for purposes of determining the tax of a foreign corporation which at no time during the taxable year is engaged in trade or business in the United States but has for the taxable year real property income or interest on obligations of the United States which, by reason of section 882 (d) or (e) and § 1.882-2, is treated as effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. A foreign corporation to which this section applies must segregate its gross income for the taxable year into two categories, namely, the income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation and the income which is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. A separate tax shall then be determined upon each such category of income, as provided in paragraph (b) of this section. The determination of whether income or gain is or is not effectively connected for the taxable year with the conduct of a trade or business in the United States by the foreign corporation shall be made in accordance with section 864(c) and §§ 1.864-3 through 1.864-7. For purposes of this section income which is effectively connected for the taxable year with the conduct of a trade or business in the United States includes all income which is treated under section 882 (d) or (e) and § 1.882-2 as income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by the foreign corporation.
(b) Imposition of tax—(1) Income not effectively connected with the conduct of a trade or business in the United States. If a foreign corporation to which this section applies derives during the taxable year from sources within the United States income or gains described in section 881(a) and paragraph (b) or (c) of § 1.881-2 which are not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation, such income or gains shall be subject to a flat tax of 30 percent of the aggregate amount of such items. This tax shall be determined in the manner, and subject to the same conditions, set forth in § 1.881-2 as though the income or gains were derived by a foreign corporation not engaged in trade or business in the United States during the taxable year, except that in applying paragraph (c) of such section there shall not be taken into account any gains which are taken into account in determining the tax under section 882(a)(1) and subparagraph (2) of this paragraph.
(2) Income effectively connected with the conduct of a trade or business in the United States—(i) In general. If a foreign corporation to which this section applies derives income or gains which are effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation, the taxable income or gains shall, except as provided in § 1.871-12, be taxed in accordance with section 11 or, in the alternative, section 1201(a). See sections 11(f) and 882(a)(1). Any income of the foreign corporation which is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation shall not be taken into account in determining either the rate or amount of such tax.
(ii) Determination of taxable income. The taxable income for any taxable year for purposes of this subparagraph consists only of the foreign corporation's taxable income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation; and, for this purpose, it is immaterial that the trade or business with which that income is effectively connected is not the same as the trade or business carried on in the United States by that corporation during the taxable year. See example 2 in § 1.864-4(b). In determining such taxable income all amounts constituting, or considered to be, gains or losses for the taxable year from the sale or exchange of capital assets shall be taken into account if such gains or losses are effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation.
(iii) Cross references. For rules for determining the gross income and deductions for the taxable year, see section 882 (b) and (c)(1) and the regulations thereunder.
(c) Change in trade or business status. The principles of paragraph (c) of § 1.871-8 shall apply to cases where there has been a change in the trade or business status of a foreign corporation.
(d) Credits against tax. The credits allowed by section 32 (relating to tax withheld at source on foreign corporations), section 33 (relating to the foreign tax credit), section 38 (relating to investment in certain depreciable property), section 39 (relating to certain uses of gasoline and lubricating oil), section 40 (relating to expenses of work incentive programs), and section 6042 (relating to overpayments of a tax) shall be allowed against the tax determined in accordance with this section. However, the credits allowed by sections 33, 38, and 40 shall not be allowed against the flat tax of 30 percent imposed by section 881(a) and paragraph (b)(1) of this section. For special rules applicable in determining the foreign tax credit, see section 906(b) and the regulations thereunder. For the disallowance of certain credits where a return is not filed for the taxable year see section 882(c)(2) and the regulations thereunder.
(e) Payment of estimated tax. Every foreign corporation which for the taxable year is subject to tax under section 11 or 1201(a) and this section must make payment of its estimated tax in accordance with section 6154 and the regulations thereunder. In determining the amount of the estimated tax the foreign corporation must treat the tax imposed by section 881(a) and paragraph (b)(1) of this section as though it were a tax imposed by section 11.
(f) Effective date. This section applies for taxable years beginning after December 31, 1966. For corresponding rules applicable to taxable years beginning before January 1, 1967, see 26 CFR 1.882-1 (Revised as of January 1, 1971).
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Treas. Reg. §1.882-1(a)Segregation of income.
Segregation of income. This section applies for purposes of determining the tax of a foreign corporation which at any time during the taxable year is engaged in trade or business in the United States. It also applies for purposes of determining the tax of a foreign corporation which at no time during the taxable year is engaged in trade or business in the United States but has for the taxable year real property income or interest on obligations of the United States which, by reason of section 882 (d) or (e) and § 1.882-2, is treated as effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. A foreign corporation to which this section applies must segregate its gross income for the taxable year into two categories, namely, the income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation and the income which is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. A separate tax shall then be determined upon each such category of income, as provided in paragraph (b) of this section. The determination of whether income or gain is or is not effectively connected for the taxable year with the conduct of a trade or business in the United States by the foreign corporation shall be made in accordance with section 864(c) and §§ 1.864-3 through 1.864-7. For purposes of this section income which is effectively connected for the taxable year with the conduct of a trade or business in the United States includes all income which is treated under section 882 (d) or (e) and § 1.882-2 as income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by the foreign corporation.
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Treas. Reg. §1.882-1(b)Imposition of tax—(1) Income not effectively connected with the conduct of a trade or business in the United States.
Imposition of tax—(1) Income not effectively connected with the conduct of a trade or business in the United States. If a foreign corporation to which this section applies derives during the taxable year from sources within the United States income or gains described in section 881(a) and paragraph (b) or (c) of § 1.881-2 which are not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation, such income or gains shall be subject to a flat tax of 30 percent of the aggregate amount of such items. This tax shall be determined in the manner, and subject to the same conditions, set forth in § 1.881-2 as though the income or gains were derived by a foreign corporation not engaged in trade or business in the United States during the taxable year, except that in applying paragraph (c) of such section there shall not be taken into account any gains which are taken into account in determining the tax under section 882(a)(1) and subparagraph (2) of this paragraph.
(2) Income effectively connected with the conduct of a trade or business in the United States—(i) In general. If a foreign corporation to which this section applies derives income or gains which are effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation, the taxable income or gains shall, except as provided in § 1.871-12, be taxed in accordance with section 11 or, in the alternative, section 1201(a). See sections 11(f) and 882(a)(1). Any income of the foreign corporation which is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation shall not be taken into account in determining either the rate or amount of such tax.
(ii) Determination of taxable income. The taxable income for any taxable year for purposes of this subparagraph consists only of the foreign corporation's taxable income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation; and, for this purpose, it is immaterial that the trade or business with which that income is effectively connected is not the same as the trade or business carried on in the United States by that corporation during the taxable year. See example 2 in § 1.864-4(b). In determining such taxable income all amounts constituting, or considered to be, gains or losses for the taxable year from the sale or exchange of capital assets shall be taken into account if such gains or losses are effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation.
(iii) Cross references. For rules for determining the gross income and deductions for the taxable year, see section 882 (b) and (c)(1) and the regulations thereunder.
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Treas. Reg. §1.882-1(c)Change in trade or business status.
Change in trade or business status. The principles of paragraph (c) of § 1.871-8 shall apply to cases where there has been a change in the trade or business status of a foreign corporation.
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Treas. Reg. §1.882-1(d)Credits against tax.
Credits against tax. The credits allowed by section 32 (relating to tax withheld at source on foreign corporations), section 33 (relating to the foreign tax credit), section 38 (relating to investment in certain depreciable property), section 39 (relating to certain uses of gasoline and lubricating oil), section 40 (relating to expenses of work incentive programs), and section 6042 (relating to overpayments of a tax) shall be allowed against the tax determined in accordance with this section. However, the credits allowed by sections 33, 38, and 40 shall not be allowed against the flat tax of 30 percent imposed by section 881(a) and paragraph (b)(1) of this section. For special rules applicable in determining the foreign tax credit, see section 906(b) and the regulations thereunder. For the disallowance of certain credits where a return is not filed for the taxable year see section 882(c)(2) and the regulations thereunder.
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Treas. Reg. §1.882-1(e)Payment of estimated tax.
Payment of estimated tax. Every foreign corporation which for the taxable year is subject to tax under section 11 or 1201(a) and this section must make payment of its estimated tax in accordance with section 6154 and the regulations thereunder. In determining the amount of the estimated tax the foreign corporation must treat the tax imposed by section 881(a) and paragraph (b)(1) of this section as though it were a tax imposed by section 11.
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Treas. Reg. §1.882-1(f)Effective date.
Effective date. This section applies for taxable years beginning after December 31, 1966. For corresponding rules applicable to taxable years beginning before January 1, 1967, see 26 CFR 1.882-1 (Revised as of January 1, 1971).
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Treas. Reg. §1.882-2Income of foreign corporations treated as effectively connected with U.S. business
(a) Election as to real property income. A foreign corporation which during the taxable year derives any income from real property which is located in the United States, or derives income from any interest in any such real property, may elect, pursuant to section 882(d) and § 1.871-10, to treat all such income as income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. The election may be made whether or not the foreign corporation is engaged in trade or business in the United States during the taxable year for which the election is made or whether or not the corporation has income from real property which for the taxable year is effectively connected with the conduct of a trade or business in the United States, but it may be made only with respect to income from sources within the United States which, without regard to section 882(d) and § 1.871-10, is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. The income to which the election applies shall be determined as provided in paragraph (b) of § 1.871-10 and shall be subject to tax in the manner, and subject to the same conditions, provided by section 882(a)(1) and paragraph (b)(2) of § 1.882-1. Section 871(d) (2) and (3) and the provisions of § 1.871-10 thereunder shall apply in respect of an election under section 882(d) in the same manner and to the same extent as they apply in respect of elections under section 871(d).
(b) Interest on U.S. obligations received by banks organized in possessions. Interest received from sources within the United States during the taxable year on obligations of the United States by a foreign corporation created or organized in, or under the law of, a possession of the United States and carrying on the banking business in a possession of the United States during the taxable year shall be treated, pursuant to section 882(e) and this paragraph, as income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. This paragraph applies whether or not the foreign corporation is engaged in trade or business in the United States at any time during the taxable year but only with respect to income which, without regard to this paragraph, is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. Any interest to which this paragraph applies shall be subject to tax in the manner, and subject to the same conditions, provided by section 882(a)(1) and paragraph (b)(2) of § 1.882-1. To the extent that deductions are connected with interest to which this paragraph applies, they shall be treated for purposes of section 882(c)(1) and the regulations thereunder as connected with income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by the foreign corporation. An election by the taxpayer is not required in respect of the income to which this paragraph applies. For purposes of this paragraph the term “possession of the United States” includes Guam, the Midway Islands, the Panama Canal Zone, the Commonwealth of Puerto Rico, American Samoa, the Virgin Islands, and Wake Island.
(c) Treatment of income. Any income in respect of which an election described in paragraph (a) of this section is in effect, and any interest to which paragraph (b) of this section applies, shall be treated, for purposes of paragraph (b)(2) of § 1.882-1 and paragraph (a) of § 1.1441-4, as income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by the foreign corporation. A foreign corporation shall not be treated as being engaged in trade or business in the United States merely by reason of having such income for the taxable year.
(d) Effective date. This section applies for taxable years beginning after December 31, 1966. There are no corresponding rules in this part for taxable years beginning before January 1, 1967.
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Treas. Reg. §1.882-2(a)Election as to real property income.
Election as to real property income. A foreign corporation which during the taxable year derives any income from real property which is located in the United States, or derives income from any interest in any such real property, may elect, pursuant to section 882(d) and § 1.871-10, to treat all such income as income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. The election may be made whether or not the foreign corporation is engaged in trade or business in the United States during the taxable year for which the election is made or whether or not the corporation has income from real property which for the taxable year is effectively connected with the conduct of a trade or business in the United States, but it may be made only with respect to income from sources within the United States which, without regard to section 882(d) and § 1.871-10, is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. The income to which the election applies shall be determined as provided in paragraph (b) of § 1.871-10 and shall be subject to tax in the manner, and subject to the same conditions, provided by section 882(a)(1) and paragraph (b)(2) of § 1.882-1. Section 871(d) (2) and (3) and the provisions of § 1.871-10 thereunder shall apply in respect of an election under section 882(d) in the same manner and to the same extent as they apply in respect of elections under section 871(d).
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Treas. Reg. §1.882-2(b)Interest on U.
Interest on U.S. obligations received by banks organized in possessions. Interest received from sources within the United States during the taxable year on obligations of the United States by a foreign corporation created or organized in, or under the law of, a possession of the United States and carrying on the banking business in a possession of the United States during the taxable year shall be treated, pursuant to section 882(e) and this paragraph, as income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. This paragraph applies whether or not the foreign corporation is engaged in trade or business in the United States at any time during the taxable year but only with respect to income which, without regard to this paragraph, is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. Any interest to which this paragraph applies shall be subject to tax in the manner, and subject to the same conditions, provided by section 882(a)(1) and paragraph (b)(2) of § 1.882-1. To the extent that deductions are connected with interest to which this paragraph applies, they shall be treated for purposes of section 882(c)(1) and the regulations thereunder as connected with income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by the foreign corporation. An election by the taxpayer is not required in respect of the income to which this paragraph applies. For purposes of this paragraph the term “possession of the United States” includes Guam, the Midway Islands, the Panama Canal Zone, the Commonwealth of Puerto Rico, American Samoa, the Virgin Islands, and Wake Island.
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Treas. Reg. §1.882-2(c)Treatment of income.
Treatment of income. Any income in respect of which an election described in paragraph (a) of this section is in effect, and any interest to which paragraph (b) of this section applies, shall be treated, for purposes of paragraph (b)(2) of § 1.882-1 and paragraph (a) of § 1.1441-4, as income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by the foreign corporation. A foreign corporation shall not be treated as being engaged in trade or business in the United States merely by reason of having such income for the taxable year.
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Treas. Reg. §1.882-2(d)Effective date.
Effective date. This section applies for taxable years beginning after December 31, 1966. There are no corresponding rules in this part for taxable years beginning before January 1, 1967.
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Treas. Reg. §1.882-3Gross income of a foreign corporation
(a) In general—(1) Inclusions. The gross income of a foreign corporation for any taxable year includes only (i) the gross income which is derived from sources within the United States and which is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation and (ii) the gross income, irrespective of whether such income is derived from sources within or without the United States, which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. For the determination of the sources of income, see sections 861 through 863, and the regulations thereunder. For the determination of whether income from sources within or without the United States is effectively connected for the taxable year with the conduct of a trade or business in the United States, see sections 864(c) and 882 (d) and (e), §§ 1.864-3 through 1.864-7, and § 1.882-2.
(2) Exchange transactions. Even though a foreign corporation which effects certain transactions in the United States in stocks, securities, or commodities during the taxable year may not, by reason of section 864(b)(2) and paragraph (c) or (d) of § 1.864-2, be engaged in trade or business in the United States during the taxable year through the effecting of such transactions, nevertheless it shall be required to include in gross income for the taxable year the gains and profits from those transactions to the extent required by paragraph (c) of § 1.881-2 or by paragraph (a) of § 1.882-1.
(3) Exclusions. For exclusions from gross income of a foreign corporation, see § 1.883-1.
(b) Foreign corporations not engaged in U.S. business. In the case of a foreign corporation which at no time during the taxable year is engaged in trade or business in the United States the gross income shall include only (1) the gross income from sources within the United States which is described in section 881(a) and paragraphs (b) and (c) of § 1.881-2, and (2) the gross income from sources within the United States which, by reason of section 882 (d) or (e) and § 1.882-2, is treated as effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation.
(c) Foreign corporations engaged in U.S. business. In the case of a foreign corporation which is engaged in trade or business in the United States at any time during the taxable year, the gross income shall include (1) the gross income from sources within and without the United States which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation, (2) the gross income from sources within the United States which, by reason of section 882 (d) or (e) and § 1.882-2, is treated as effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation, and (3) the gross income from sources within the United States which is described in section 881(a) and paragraphs (b) and (c) of § 1.881-2 and is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation.
(d) Effective date. This section applies for taxable years beginning after December 31, 1966. For corresponding rules applicable to taxable years beginning before January 1, 1967, see 26 CFR 1.882-2 (Revised as of January 1, 1971).
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Treas. Reg. §1.882-3(a)In general—(1) Inclusions.
In general—(1) Inclusions. The gross income of a foreign corporation for any taxable year includes only (i) the gross income which is derived from sources within the United States and which is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation and (ii) the gross income, irrespective of whether such income is derived from sources within or without the United States, which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation. For the determination of the sources of income, see sections 861 through 863, and the regulations thereunder. For the determination of whether income from sources within or without the United States is effectively connected for the taxable year with the conduct of a trade or business in the United States, see sections 864(c) and 882 (d) and (e), §§ 1.864-3 through 1.864-7, and § 1.882-2.
(2) Exchange transactions. Even though a foreign corporation which effects certain transactions in the United States in stocks, securities, or commodities during the taxable year may not, by reason of section 864(b)(2) and paragraph (c) or (d) of § 1.864-2, be engaged in trade or business in the United States during the taxable year through the effecting of such transactions, nevertheless it shall be required to include in gross income for the taxable year the gains and profits from those transactions to the extent required by paragraph (c) of § 1.881-2 or by paragraph (a) of § 1.882-1.
(3) Exclusions. For exclusions from gross income of a foreign corporation, see § 1.883-1.
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Treas. Reg. §1.882-3(b)Foreign corporations not engaged in U.
Foreign corporations not engaged in U.S. business. In the case of a foreign corporation which at no time during the taxable year is engaged in trade or business in the United States the gross income shall include only (1) the gross income from sources within the United States which is described in section 881(a) and paragraphs (b) and (c) of § 1.881-2, and (2) the gross income from sources within the United States which, by reason of section 882 (d) or (e) and § 1.882-2, is treated as effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation.
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Treas. Reg. §1.882-3(c)Foreign corporations engaged in U.
Foreign corporations engaged in U.S. business. In the case of a foreign corporation which is engaged in trade or business in the United States at any time during the taxable year, the gross income shall include (1) the gross income from sources within and without the United States which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation, (2) the gross income from sources within the United States which, by reason of section 882 (d) or (e) and § 1.882-2, is treated as effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation, and (3) the gross income from sources within the United States which is described in section 881(a) and paragraphs (b) and (c) of § 1.881-2 and is not effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation.
20 Citing Cases
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Respondent requests that “the Court overrule its prior opinion in Swallows Holding I because the Chevron analysis materially differs from the Court’s National Muffler analysis.” We decline both parties’ invitations.
Section 882 provides for direct U.S.
881(a)(1) or (2) under section 882 the income ofa "foreign corporation engaged in trade or business within the United States during the 8Section 7701(a)(5) defines a foreign corporation as one that is "not domestic." Section 7701(a)(4) explains that "'domestic' when applied to a corporation or partnership means created or organized in the United States or under the law o
amounts of$1,090,000 and $1,170,000 for taxable years 2009 and 2010, respectively, are not U.S. source fixed or determinable, annual or periodical income under section 881, or income that is effectively connected with a U.S. trade or business under section 882." 2. The Avrahamis' Returns The Avrahamis likewise filed 2009 and 2010 tax returns. Incorporated in their returns was the income or loss--reflecting any insurance-expense deduction-- passed through to them from numerous partnerships and S
amounts of$1,090,000 and $1,170,000 for taxable years 2009 and 2010, respectively, are not U.S. source fixed or determinable, annual or periodical income under section 881, or income that is effectively connected with a U.S. trade or business under section 882." 2. The Avrahamis' Returns The Avrahamis likewise filed 2009 and 2010 tax returns. Incorporated in their returns was the income or loss--reflecting any insurance-expense deduction-- passed through to them from numerous partnerships and S
We apply different rules depending on whether the income is U.S.-source income or not U.S.-source income. In the case of U.S.-source income that is effectively connected with a U.S. trade or business, a nonresident alien will be subject to the graduated tax rates applicable to U.S. residents. In the case of U.S.- source income tha
If the majority’s hesitance to explicitly overrule Taylor Securities is an endorsement of what was, over 60 years ago, “the generally accepted rule concerning the number of returns which may be filed,” majority op.
Overview A foreign corporation engaged in a trade or business within the United States is taxable under section 11, 55, 59A, or 1201(a) on its taxable income that is effectively connected income, see sec. 882(a)(1); such taxation is consistent with that of a domestic corporation. A foreign corporation not engaged in a trade or busine
882 allows certain deductions and credits for ECI, and the net income is subject to tax. Conversely, income that is not effectively connected with the conduct of a trade or business in the United States is subject to U.S. taxation at a flat rate of 30 percent unless a different amount is provided for in an income tax treaty. Sec. 881. - 15 -
Petitioner argues that section 884(f)(1)(B) does not authorize the deduction of interest; it merely provides the extent to which interest is allowable as a deduction in the section 882 computation of ECI.
es that there were “adjustments to income” in the form of “gross receipts” for the years 1984, 1985, and 1986 in the amounts of $163,482,065, $205,277,709, and $399,260,666, respectively. After applying the section 11 corporate income tax rates (see sec. 882 — Tax on Income of Foreign Corporations Connected with United States Business), the Form 5278 states that the “total corrected income tax liability” for 1984, 1985, and 1986 equals $75,201,750, $94,427,746, and $183,659,906, respectively. Th