26 U.S.C. § 861 : US Code - Section 861: Income from sources within the United States

Search 26 U.S.C. § 861 : US Code - Section 861: Income from sources within the United States

(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 from a resident alien individual or domestic
corporation, if such individual or corporation meets the 80-
percent foreign business requirements of subsection (c)(1),
(B) 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
(C) 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 other than a corporation
which has an election in effect under section 936, 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 income of the corporation for such period which
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 bears
to its gross income from all sources; but dividends (other than
dividends for which a deduction is allowable under section
245(b)) from a foreign corporation shall, for purposes of
subpart A of part III (relating to foreign tax credit), be
treated as income from sources without the United States to the
extent (and only to the extent) exceeding the amount which is
100/70th of the amount of the deduction allowable under section
245 in respect of such dividends, or
(C) from a foreign corporation to the extent that such amount
is required by section 243(e) (relating to certain dividends
from foreign corporations) to be treated as dividends from a
domestic corporation which is subject to taxation under this
chapter, and to such extent subparagraph (B) shall not apply to
such amount, or
(D) from a DISC or former DISC (as defined in section 992(a))
except to the extent attributable (as determined under
regulations prescribed by the Secretary) to qualified export
receipts described in section 993(a)(1) (other than interest
and gains described in section 995(b)(1)).
In the case of any dividend from a 20-percent owned corporation
(as defined in section 243(c)(2)), subparagraph (B) shall be
applied by substituting "100/80th" for "100/70th".
(3) Personal services
Compensation for labor or personal services performed in the
United States; except that compensation for labor or services
performed in the United States shall not be deemed to be income
from sources within the United States if -
(A) the labor or services are performed 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,
(B) such compensation does not exceed $3,000 in the
aggregate, and
(C) the compensation is for labor or services performed as an
employee of or under a contract with -
(i) a nonresident alien, foreign partnership, or foreign
corporation, not engaged in trade or business within the
United States, or
(ii) an individual who is a citizen or resident of the
United States, a domestic partnership, or a domestic
corporation, if such labor or services are performed for an
office or place of business maintained in a foreign country
or in a possession of the United States by such individual,
partnership, or corporation.
In addition, compensation for labor or services performed in the
United States shall not be deemed to be income from sources
within the United States if the labor or services are performed
by a nonresident alien individual in connection with the
individual's temporary presence in the United States as a regular
member of the crew of a foreign vessel engaged in transportation
between the United States and a foreign country or a possession
of the United States.
(4) Rentals and royalties
Rentals or royalties from property located in the United States
or from any interest in such property, including rentals or
royalties for the use of or for the privilege of using in the
United States patents, copyrights, secret processes and formulas,
good will, trade-marks, trade brands, franchises, and other like
property.
(5) Disposition of United States real property interest
Gains, profits, and income from the disposition of a United
States real property interest (as defined in section 897(c)).
(6) Sale or exchange of inventory property
Gains, profits, and income derived from the purchase of
inventory property (within the meaning of section 865(i)(1))
without the United States (other than within a possession of the
United States) and its sale or exchange within the United States.
(7) Amounts received as underwriting income (as defined in
section 832(b)(3)) derived from the issuing (or reinsuring) of
any insurance or annuity contract -
(A) in connection with property in, liability arising out of
an activity in, or in connection with the lives or health of
residents of, the United States, or
(B) in connection with risks not described in subparagraph
(A) as a result of any arrangement whereby another corporation
receives a substantially equal amount of premiums or other
consideration in respect to issuing (or reinsuring) any
insurance or annuity contract in connection with property in,
liability arising out of activity in, or in connection with the
lives or health of residents of, the United States.
(8) Social security benefits
Any social security benefit (as defined in section 86(d)).
(b) Taxable income from sources within United States
From the items of gross income specified in subsection (a) as
being income from sources within the United States there shall be
deducted the expenses, losses, and other deductions properly
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. The remainder, if
any, shall be included in full as taxable income from sources
within the United States. In the case of an individual who does not
itemize deductions, an amount equal to the standard deduction shall
be considered a deduction which cannot definitely be allocated to
some item or class of gross income.
(c) Foreign business requirements
(1) Foreign business requirements
(A) In general
An individual or corporation meets the 80-percent foreign
business requirements of this paragraph if it is shown to the
satisfaction of the Secretary that at least 80 percent of the
gross income from all sources of such individual or corporation
for the testing period is active foreign business income.
(B) Active foreign business income
For purposes of subparagraph (A), the term "active foreign
business income" means gross income which -
(i) is derived from sources outside the United States (as
determined under this subchapter) or, in the case of a
corporation, is attributable to income so derived by a
subsidiary of such corporation, and
(ii) is attributable to the active conduct of a trade or
business in a foreign country or possession of the United
States by the individual or corporation (or by a subsidiary.)
For purposes of this subparagraph, the term "subsidiary" means
any corporation in which the corporation referred to in this
subparagraph owns (directly or indirectly) stock meeting the
requirements of section 1504(a)(2) (determined by substituting
"50 percent" for "80 percent" each place it appears).
(C) Testing period
For purposes of this subsection, the term "testing period"
means the 3-year period ending with the close of the taxable
year of the individual or corporation preceding the payment (or
such part of such period as may be applicable). If the
individual or corporation has no gross income for such 3-year
period (or part thereof), the testing period shall be the
taxable year in which the payment is made.
(2) Look-thru where related person receives interest
(A) In general
In the case of interest received by a related person from a
resident alien individual or domestic corporation meeting the
80-percent foreign business requirements of paragraph (1),
subsection (a)(1)(A) shall apply only to a percentage of such
interest equal to the percentage which -
(i) the gross income of such individual or corporation for
the testing period from sources outside the United States (as
determined under this subchapter), is of
(ii) the total gross income of such individual or
corporation for the testing period.
(B) Related person
For purposes of this paragraph, the term "related person" has
the meaning given such term by section 954(d)(3), except that -

(i) such section shall be applied by substituting "the
individual or corporation making the payment" for "controlled
foreign corporation" each place it appears, and
(ii) such section shall be applied by substituting "10
percent or more" for "more than 50 percent" each place it
appears.
(d) Special rule for application of subsection (a)(2)(B)
For purposes of subsection (a)(2)(B), if the foreign corporation
has no gross income from any source for the 3-year period (or part
thereof) specified, the requirements of such subsection shall be
applied with respect to the taxable year of such corporation in
which the payment of the dividend is made.
(e) Income from certain railroad rolling stock treated as income
from sources within the United States
(1) General rule
For purposes of subsection (a) and section 862(a), if -
(A) a taxpayer leases railroad rolling stock which is section
1245 property (as defined in section 1245(a)(3)) to a domestic
common carrier by railroad or a corporation which is
controlled, directly or indirectly, by one or more such common
carriers, and
(B) the use under such lease is expected to be use within the
United States,
all amounts includible in gross income by the taxpayer with
respect to such railroad rolling stock (including gain from sale
or other disposition of such railroad rolling stock) shall be
treated as income from sources within the United States. The
requirements of subparagraph (B) of the preceding sentence shall
be treated as satisfied if the only expected use outside the
United States is use by a person (whether or not a United States
person) in Canada or Mexico on a temporary basis which is not
expected to exceed a total of 90 days in any taxable year.
(2) Paragraph (1) not to apply where lessor is a member of
controlled group which includes a railroad
Paragraph (1) shall not apply to a lease between two members of
the same controlled group of corporations (as defined in section
1563) if any member of such group is a domestic common carrier by
railroad or a switching or terminal company all of whose stock is
owned by one or more domestic common carriers by railroad.
(3) Denial of foreign tax credit
No credit shall be allowed under section 901 for any payments
to foreign countries with respect to any amount received by the
taxpayer with respect to railroad rolling stock which is subject
to paragraph (1).
(f) Cross reference
For treatment of interest paid by the branch of a foreign
corporation, see section 884(f).