26 U.S.C. § 871 : US Code - Section 871: Tax on nonresident alien individuals

    (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 section 631(b) or (c), and gains on
        transfers described in section 1235 made on or before October
        4, 1966,
          (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
        sold or exchanged,

      but only to the extent the amount so received is not effectively
      connected with the conduct of a trade or business within the
      United States.
      (2) Capital gains of aliens present in the United States 183 days
        or more
        In the case of a nonresident alien individual present in the
      United States for a period or periods aggregating 183 days or
      more during the taxable year, there is hereby imposed for such
      year a tax of 30 percent of the amount by which his gains,
      derived from sources within the United States, from the sale or
      exchange at any time during such year of capital assets exceed
      his losses, allocable to sources within the United States, from
      the sale or exchange at any time during such year of capital
      assets. For purposes of this paragraph, gains and losses shall be
      taken into account only if, and to the extent that, they would be
      recognized and taken into account if such gains and losses were
      effectively connected with the conduct of a trade or business
      within the United States, except that such gains and losses shall
      be determined without regard to section 1202 and such losses
      shall be determined without the benefits of the capital loss
      carryover provided in section 1212. Any gain or loss which is
      taken into account in determining the tax under paragraph (1) or
      subsection (b) shall not be taken into account in determining the
      tax under this paragraph. For purposes of the 183-day requirement
      of this paragraph, a nonresident alien individual not engaged in
      trade or business within the United States who has not
      established a taxable year for any prior period shall be treated
      as having a taxable year which is the calendar year.
      (3) Taxation of social security benefits
        For purposes of this section and section 1441 - 
          (A) 85 percent of any social security benefit (as defined in
        section 86(d)) shall be included in gross income
        (notwithstanding section 207 of the Social Security Act), and
          (B) section 86 shall not apply.

          For treatment of certain citizens of possessions of the
        United States, see section 932(c).(!1)

    (b) Income connected with United States business - graduated rate
      of tax
      (1) Imposition of tax
        A nonresident alien individual engaged in trade or business
      within the United States during the taxable year shall be taxable
      as provided in section 1 or 55 on his taxable income which is
      effectively connected with the conduct of a trade or business
      within the United States.
      (2) Determination of taxable income
        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.
    (c) Participants in certain exchange or training programs
      For purposes of this section, a nonresident alien individual who
    (without regard to this subsection) is not engaged in trade or
    business within the United States and who is temporarily present in
    the United States as a nonimmigrant under subparagraph (F), (J),
    (M), or (Q) of section 101(a)(15) of the Immigration and
    Nationality Act, as amended (8 U.S.C. 1101(a)(15)(F), (J), (M), or
    (Q)), shall be treated as a nonresident alien individual engaged in
    trade or business within the United States, and any income
    described in the second sentence of section 1441(b) which is
    received by such individual shall, to the extent derived from
    sources within the United States, be treated as effectively
    connected with the conduct of a trade or business within the United
    States.
    (d) Election to treat real property income as income connected with
      United States business
      (1) In general
        A nonresident alien individual who during the taxable year
      derives any income - 
          (A) from real property held for the production of income and
        located in the United States, or from any interest in such real
        property, including (i) gains from the sale or exchange of such
        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
          (B) which, but for this subsection, would not be treated as
        income which is 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 (b)(1) whether or not
      such individual 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.
      (2) Election after revocation
        If an election has been made under paragraph (1) and such
      election has been revoked, a new election may not be made under
      such paragraph for any taxable year before the 5th taxable year
      which begins after the first taxable year for which such
      revocation is effective, unless the Secretary consents to such
      new election.
      (3) Form and time of election and revocation
        An election under paragraph (1), and any revocation of such an
      election, may be made only in such manner and at such time as the
      Secretary may by regulations prescribe.
    [(e) Repealed. Pub. L. 99-514, title XII, Sec. 1211(b)(5), Oct. 22,
      1986, 100 Stat. 2536]
    (f) Certain annuities received under qualified plans
      (1) In general
        For purposes of this section, gross income does not include any
      amount received as an annuity under a qualified annuity plan
      described in section 403(a)(1), or from a qualified trust
      described in section 401(a) which is exempt from tax under
      section 501(a), if - 
          (A) all of the personal services by reason of which the
        annuity is payable were either - 
            (i) personal services performed outside the United States
          by an individual who, at the time of performance of such
          personal services, was a nonresident alien, or
            (ii) personal services described in section 864(b)(1)
          performed within the United States by such individual, and

          (B) at the time the first amount is paid as an annuity under
        the annuity plan or by the trust, 90 percent or more of the
        employees for whom contributions or benefits are provided under
        such annuity plan, or under the plan or plans of which the
        trust is a part, are citizens or residents of the United
        States.
      (2) Exclusion
        Income received during the taxable year which would be excluded
      from gross income under this subsection but for the requirement
      of paragraph (1)(B) shall not be included in gross income if - 
          (A) the recipient's country of residence grants a
        substantially equivalent exclusion to residents and citizens of
        the United States; or
          (B) the recipient's country of residence is a beneficiary
        developing country under title V of the Trade Act of 1974 (19
        U.S.C. 2461 et seq.).
    (g) Special rules for original issue discount
      For purposes of this section and section 881 - 
      (1) Original issue discount obligation
        (A) In general
          Except as provided in subparagraph (B), the term "original
        issue discount obligation" means any bond or other evidence of
        indebtedness having original issue discount (within the meaning
        of section 1273).
        (B) Exceptions
          The term "original issue discount obligation" shall not
        include - 
          (i) Certain short-term obligations
            Any obligation payable 183 days or less from the date of
          original issue (without regard to the period held by the
          taxpayer).
          (ii) Tax-exempt obligations
            Any obligation the interest on which is exempt from tax
          under section 103 or under any other provision of law without
          regard to the identity of the holder.
      (2) Determination of portion of original issue discount accruing
        during any period
        The determination of the amount of the original issue discount
      which accrues during any period shall be made under the rules of
      section 1272 (or the corresponding provisions of prior law)
      without regard to any exception for short-term obligations.
      (3) Source of original issue discount
        Except to the extent provided in regulations prescribed by the
      Secretary, the determination of whether any amount described in
      subsection (a)(1)(C) is from sources within the United States
      shall be made at the time of the payment (or sale or exchange) as
      if such payment (or sale or exchange) involved the payment of
      interest.
      (4) Stripped bonds
        The provisions of section 1286 (relating to the treatment of
      stripped bonds and stripped coupons as obligations with original
      issue discount) shall apply for purposes of this section.
    (h) Repeal of tax on interest of nonresident alien individuals
      received from certain portfolio debt investments
      (1) In general
        In the case of any portfolio interest received by a nonresident
      individual from sources within the United States, no tax shall be
      imposed under paragraph (1)(A) or (1)(C) of subsection (a).
      (2) Portfolio interest
        For purposes of this subsection, the term "portfolio interest"
      means any interest (including original issue discount) which - 
          (A) would be subject to tax under subsection (a) but for this
        subsection, and
          (B) is paid on an obligation - 
            (i) which is in registered form, and
            (ii) with respect to which - 
              (I) the United States person who would otherwise be
            required to deduct and withhold tax from such interest
            under section 1441(a) receives a statement (which meets the
            requirements of paragraph (5)) that the beneficial owner of
            the obligation is not a United States person, or
              (II) the Secretary has determined that such a statement
            is not required in order to carry out the purposes of this
            subsection.
      (3) Portfolio interest not to include interest received by 10-
        percent shareholders
        For purposes of this subsection - 
        (A) In general
          The term "portfolio interest" shall not include any interest
        described in paragraph (2) which is received by a 10-percent
        shareholder.
        (B) 10-Percent shareholder
          The term "10-percent shareholder" means - 
            (i) in the case of an obligation issued by a corporation,
          any person who owns 10 percent or more of the total combined
          voting power of all classes of stock of such corporation
          entitled to vote, or
            (ii) in the case of an obligation issued by a partnership,
          any person who owns 10 percent or more of the capital or
          profits interest in such partnership.
        (C) Attribution rules
          For purposes of determining ownership of stock under
        subparagraph (B)(i) the rules of section 318(a) shall apply,
        except that - 
            (i) section 318(a)(2)(C) shall be applied without regard to
          the 50-percent limitation therein,
            (ii) section 318(a)(3)(C) shall be applied - 
              (I) without regard to the 50-percent limitation therein;
            and
              (II) in any case where such section would not apply but
            for subclause (I), by considering a corporation as owning
            the stock (other than stock in such corporation) which is
            owned by or for any shareholder of such corporation in that
            proportion which the value of the stock which such
            shareholder owns in such corporation bears to the value of
            all stock in such corporation, and

            (iii) any stock which a person is treated as owning after
          application of section 318(a)(4) shall not, for purposes of
          applying paragraphs (2) and (3) of section 318(a), be treated
          as actually owned by such person.

        Under regulations prescribed by the Secretary, rules similar to
        the rules of the preceding sentence shall be applied in
        determining the ownership of the capital or profits interest in
        a partnership for purposes of subparagraph (B)(ii).
      (4) Portfolio interest not to include certain contingent interest
        For purposes of this subsection - 
        (A) In general
          Except as otherwise provided in this paragraph, the term
        "portfolio interest" shall not include - 
            (i) any interest if the amount of such interest is
          determined by reference to - 
              (I) any receipts, sales or other cash flow of the debtor
            or a related person,
              (II) any income or profits of the debtor or a related
            person,
              (III) any change in value of any property of the debtor
            or a related person, or
              (IV) any dividend, partnership distributions, or similar
            payments made by the debtor or a related person, or

            (ii) any other type of contingent interest that is
          identified by the Secretary by regulation, where a denial of
          the portfolio interest exemption is necessary or appropriate
          to prevent avoidance of Federal income tax.
        (B) Related person
          The term "related person" means any person who is related to
        the debtor within the meaning of section 267(b) or 707(b)(1),
        or who is a party to any arrangement undertaken for a purpose
        of avoiding the application of this paragraph.
        (C) Exceptions
          Subparagraph (A)(i) shall not apply to - 
            (i) any amount of interest solely by reason of the fact
          that the timing of any interest or principal payment is
          subject to a contingency,
            (ii) any amount of interest solely by reason of the fact
          that the interest is paid with respect to nonrecourse or
          limited recourse indebtedness,
            (iii) any amount of interest all or substantially all of
          which is determined by reference to any other amount of
          interest not described in subparagraph (A) (or by reference
          to the principal amount of indebtedness on which such other
          interest is paid),
            (iv) any amount of interest solely by reason of the fact
          that the debtor or a related person enters into a hedging
          transaction to manage the risk of interest rate or currency
          fluctuations with respect to such interest,
            (v) any amount of interest determined by reference to - 
              (I) changes in the value of property (including stock)
            that is actively traded (within the meaning of section
            1092(d)) other than property described in section 897(c)(1)
            or (g),
              (II) the yield on property described in subclause (I),
            other than a debt instrument that pays interest described
            in subparagraph (A), or stock or other property that
            represents a beneficial interest in the debtor or a related
            person, or
              (III) changes in any index of the value of property
            described in subclause (I) or of the yield on property
            described in subclause (II), and

            (vi) any other type of interest identified by the Secretary
          by regulation.
        (D) Exception for certain existing indebtedness
          Subparagraph (A) shall not apply to any interest paid or
        accrued with respect to any indebtedness with a fixed term - 
            (i) which was issued on or before April 7, 1993, or
            (ii) which was issued after such date pursuant to a written
          binding contract in effect on such date and at all times
          thereafter before such indebtedness was issued.
      (5) Certain statements
        A statement with respect to any obligation meets the
      requirements of this paragraph if such statement is made by - 
          (A) the beneficial owner of such obligation, or
          (B) a securities clearing organization, a bank, or other
        financial institution that holds customers' securities in the
        ordinary course of its trade or business.

      The preceding sentence shall not apply to any statement with
      respect to payment of interest on any obligation by any person
      if, at least one month before such payment, the Secretary has
      published a determination that any statement from such person (or
      any class including such person) does not meet the requirements
      of this paragraph.
      (6) Secretary may provide subsection not to apply in cases of
        inadequate information exchange
        (A) In general
          If the Secretary determines that the exchange of information
        between the United States and a foreign country is inadequate
        to prevent evasion of the United States income tax by United
        States persons, the Secretary may provide in writing (and
        publish a statement) that the provisions of this subsection
        shall not apply to payments of interest to any person within
        such foreign country (or payments addressed to, or for the
        account of, persons within such foreign country) during the
        period - 
            (i) beginning on the date specified by the Secretary, and
            (ii) ending on the date that the Secretary determines that
          the exchange of information between the United States and the
          foreign country is adequate to prevent the evasion of United
          States income tax by United States persons.
        (B) Exception for certain obligations
          Subparagraph (A) shall not apply to the payment of interest
        on any obligation which is issued on or before the date of the
        publication of the Secretary's determination under such
        subparagraph.
      (7) Registered form
        For purposes of this subsection, the term "registered form" has
      the same meaning given such term by section 163(f).
    (i) Tax not to apply to certain interest and dividends
      (1) In general
        No tax shall be imposed under paragraph (1)(A) or (1)(C) of
      subsection (a) on any amount described in paragraph (2).
      (2) Amounts to which paragraph (1) applies
        The amounts described in this paragraph are as follows:
          (A) Interest on deposits, if such interest is not effectively
        connected with the conduct of a trade or business within the
        United States.
          (B) The active foreign business percentage of - 
            (i) any dividend paid by an existing 80/20 company, and
            (ii) any interest paid by an existing 80/20 company.

          (C) Income derived by a foreign central bank of issue from
        bankers' acceptances.
          (D) Dividends paid by a foreign corporation which are treated
        under section 861(a)(2)(B) as income from sources within the
        United States.
      (3) Deposits
        For purposes of paragraph (2), the term "deposits" means
      amounts which are - 
          (A) deposits with persons carrying on the banking business,
          (B) deposits or withdrawable accounts with savings
        institutions chartered and supervised as savings and loan or
        similar associations under Federal or State law, but only to
        the extent that amounts paid or credited on such deposits or
        accounts are deductible under section 591 (determined without
        regard to sections 265 and 291) in computing the taxable income
        of such institutions, and
          (C) amounts held by an insurance company under an agreement
        to pay interest thereon.
    (j) Exemption for certain gambling winnings
      No tax shall be imposed under paragraph (1)(A) of subsection (a)
    on the proceeds from a wager placed in any of the following games:
    blackjack, baccarat, craps, roulette, or big-6 wheel. The preceding
    sentence shall not apply in any case where the Secretary determines
    by regulation that the collection of the tax is administratively
    feasible.
    (k) Exemption for certain dividends of regulated investment
      companies
      (1) Interest-related dividends
        (A) In general
          Except as provided in subparagraph (B), no tax shall be
        imposed under paragraph (1)(A) of subsection (a) on any
        interest-related dividend received from a regulated investment
        company which meets the requirements of section 852(a) for the
        taxable year with respect to which the dividend is paid.
        (B) Exceptions
          Subparagraph (A) shall not apply - 
            (i) to any interest-related dividend received from a
          regulated investment company by a person to the extent such
          dividend is attributable to interest (other than interest
          described in subparagraph (E)(i) or (iii)) received by such
          company on indebtedness issued by such person or by any
          corporation or partnership with respect to which such person
          is a 10-percent shareholder,
            (ii) to any interest-related dividend with respect to stock
          of a regulated investment company unless the person who would
          otherwise be required to deduct and withhold tax from such
          dividend under chapter 3 receives a statement (which meets
          requirements similar to the requirements of subsection
          (h)(5)) that the beneficial owner of such stock is not a
          United States person, and
            (iii) to any interest-related dividend paid to any person
          within a foreign country (or any interest-related dividend
          payment addressed to, or for the account of, persons within
          such foreign country) during any period described in
          subsection (h)(6) with respect to such country.

        Clause (iii) shall not apply to any dividend with respect to
        any stock which was acquired on or before the date of the
        publication of the Secretary's determination under subsection
        (h)(6).
        (C) Interest-related dividend
          For purposes of this paragraph - 
          (i) In general
            Except as provided in clause (ii), an interest related
          dividend is any dividend, or part thereof, which is reported
          by the company as an interest related dividend in written
          statements furnished to its shareholders.
          (ii) Excess reported amounts
            If the aggregate reported amount with respect to the
          company for any taxable year exceeds the qualified net
          interest income of the company for such taxable year, an
          interest related dividend is the excess of - 
              (I) the reported interest related dividend amount, over
              (II) the excess reported amount which is allocable to
            such reported interest related dividend amount.
          (iii) Allocation of excess reported amount
            (I) In general
              Except as provided in subclause (II), the excess reported
            amount (if any) which is allocable to the reported interest
            related dividend amount is that portion of the excess
            reported amount which bears the same ratio to the excess
            reported amount as the reported interest related dividend
            amount bears to the aggregate reported amount.
            (II) Special rule for noncalendar year taxpayers
              In the case of any taxable year which does not begin and
            end in the same calendar year, if the post-December
            reported amount equals or exceeds the excess reported
            amount for such taxable year, subclause (I) shall be
            applied by substituting "post-December reported amount" for
            "aggregate reported amount" and no excess reported amount
            shall be allocated to any dividend paid on or before
            December 31 of such taxable year.
          (iv) Definitions
            For purposes of this subparagraph - 
            (I) Reported interest related dividend amount
              The term "reported interest related dividend amount"
            means the amount reported to its shareholders under clause
            (i) as an interest related dividend.
            (II) Excess reported amount
              The term "excess reported amount" means the excess of the
            aggregate reported amount over the qualified net interest
            income of the company for the taxable year.
            (III) Aggregate reported amount
              The term "aggregate reported amount" means the aggregate
            amount of dividends reported by the company under clause
            (i) as interest related dividends for the taxable year
            (including interest related dividends paid after the close
            of the taxable year described in section 855).
            (IV) Post-December reported amount
              The term "post-December reported amount" means the
            aggregate reported amount determined by taking into account
            only dividends paid after December 31 of the taxable year.
          (v) Termination
            The term "interest related dividend" shall not include any
          dividend with respect to any taxable year of the company
          beginning after December 31, 2011.
        (D) Qualified net interest income
          For purposes of subparagraph (C), the term "qualified net
        interest income" means the qualified interest income of the
        regulated investment company reduced by the deductions properly
        allocable to such income.
        (E) Qualified interest income
          For purposes of subparagraph (D), the term "qualified
        interest income" means the sum of the following amounts derived
        by the regulated investment company from sources within the
        United States:
            (i) Any amount includible in gross income as original issue
          discount (within the meaning of section 1273) on an
          obligation payable 183 days or less from the date of original
          issue (without regard to the period held by the company).
            (ii) Any interest includible in gross income (including
          amounts recognized as ordinary income in respect of original
          issue discount or market discount or acquisition discount
          under part V of subchapter P and such other amounts as
          regulations may provide) on an obligation which is in
          registered form; except that this clause shall not apply to -
          
              (I) any interest on an obligation issued by a corporation
            or partnership if the regulated investment company is a 10-
            percent shareholder in such corporation or partnership,
            and
              (II) any interest which is treated as not being portfolio
            interest under the rules of subsection (h)(4).

            (iii) Any interest referred to in subsection (i)(2)(A)
          (without regard to the trade or business of the regulated
          investment company).
            (iv) Any interest-related dividend includable in gross
          income with respect to stock of another regulated investment
          company.
        (F) 10-percent shareholder
          For purposes of this paragraph, the term "10-percent
        shareholder" has the meaning given such term by subsection
        (h)(3)(B).
      (2) Short-term capital gain dividends
        (A) In general
          Except as provided in subparagraph (B), no tax shall be
        imposed under paragraph (1)(A) of subsection (a) on any short-
        term capital gain dividend received from a regulated
        investment company which meets the requirements of section
        852(a) for the taxable year with respect to which the dividend
        is paid.
        (B) Exception for aliens taxable under subsection (a)(2)
          Subparagraph (A) shall not apply in the case of any
        nonresident alien individual subject to tax under subsection
        (a)(2).
        (C) Short-term capital gain dividend
          For purposes of this paragraph - 
          (i) In general
            Except as provided in clause (ii), the term "short-term
          capital gain dividend" means any dividend, or part thereof,
          which is reported by the company as a short-term capital gain
          dividend in written statements furnished to its shareholders.
          (ii) Excess reported amounts
            If the aggregate reported amount with respect to the
          company for any taxable year exceeds the qualified short-term
          gain of the company for such taxable year, the term "short-
          term capital gain dividend" means the excess of - 
              (I) the reported short-term capital gain dividend amount,
            over
              (II) the excess reported amount which is allocable to
            such reported short-term capital gain dividend amount.
          (iii) Allocation of excess reported amount
            (I) In general
              Except as provided in subclause (II), the excess reported
            amount (if any) which is allocable to the reported short-
            term capital gain dividend amount is that portion of the
            excess reported amount which bears the same ratio to the
            excess reported amount as the reported short-term capital
            gain dividend amount bears to the aggregate reported
            amount.
            (II) Special rule for noncalendar year taxpayers
              In the case of any taxable year which does not begin and
            end in the same calendar year, if the post-December
            reported amount equals or exceeds the excess reported
            amount for such taxable year, subclause (I) shall be
            applied by substituting "post-December reported amount" for
            "aggregate reported amount" and no excess reported amount
            shall be allocated to any dividend paid on or before
            December 31 of such taxable year.
          (iv) Definitions
            For purposes of this subparagraph - 
            (I) Reported short-term capital gain dividend amount
              The term "reported short-term capital gain dividend
            amount" means the amount reported to its shareholders under
            clause (i) as a short-term capital gain dividend.
            (II) Excess reported amount
              The term "excess reported amount" means the excess of the
            aggregate reported amount over the qualified short-term
            gain of the company for the taxable year.
            (III) Aggregate reported amount
              The term "aggregate reported amount" means the aggregate
            amount of dividends reported by the company under clause
            (i) as short-term capital gain dividends for the taxable
            year (including short-term capital gain dividends paid
            after the close of the taxable year described in section
            855).
            (IV) Post-December reported amount
              The term "post-December reported amount" means the
            aggregate reported amount determined by taking into account
            only dividends paid after December 31 of the taxable year.
          (v) Termination
            The term "short-term capital gain dividend" shall not
          include any dividend with respect to any taxable year of the
          company beginning after December 31, 2011.
        (D) Qualified short-term gain
          For purposes of subparagraph (C), the term "qualified short-
        term gain" means the excess of the net short-term capital gain
        of the regulated investment company for the taxable year over
        the net long-term capital loss (if any) of such company for
        such taxable year. For purposes of this subparagraph, the net
        short-term capital gain of the regulated investment company
        shall be computed by treating any short-term capital gain
        dividend includible in gross income with respect to stock of
        another regulated investment company as a short-term capital
        gain.
        (E) Certain distributions
          In the case of a distribution to which section 897 does not
        apply by reason of the second sentence of section 897(h)(1),
        the amount which would be treated as a short-term capital gain
        dividend to the shareholder (without regard to this
        subparagraph) - 
            (i) shall not be treated as a short-term capital gain
          dividend, and
            (ii) shall be included in such shareholder's gross income
          as a dividend from the regulated investment company.
    (l) Rules relating to existing 80/20 companies
      For purposes of this subsection and subsection (i)(2)(B) - 
      (1) Existing 80/20 company
        (A) In general
          The term "existing 80/20 company" means any corporation if - 
            (i) such corporation met the 80-percent foreign business
          requirements of section 861(c)(1) (as in effect before the
          date of the enactment of this subsection) for such
          corporation's last taxable year beginning before January 1,
          2011,
            (ii) such corporation meets the 80-percent foreign business
          requirements of subparagraph (B) with respect to each taxable
          year after the taxable year referred to in clause (i), and
            (iii) there has not been an addition of a substantial line
          of business with respect to such corporation after the date
          of the enactment of this subsection.
        (B) Foreign business requirements
          (i) In general
            Except as provided in clause (iv), a corporation meets the
          80-percent foreign business requirements of this subparagraph
          if it is shown to the satisfaction of the Secretary that at
          least 80 percent of the gross income from all sources of such
          corporation for the testing period is active foreign business
          income.
          (ii) Active foreign business income
            For purposes of clause (i), the term "active foreign
          business income" means gross income which - 
              (I) is derived from sources outside the United States (as
            determined under this subchapter), and
              (II) is attributable to the active conduct of a trade or
            business in a foreign country or possession of the United
            States.
          (iii) 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 corporation preceding the payment (or such part
          of such period as may be applicable). If the 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.
          (iv) Transition rule
            In the case of a taxable year for which the testing period
          includes 1 or more taxable years beginning before January 1,
          2011 - 
              (I) a corporation meets the 80-percent foreign business
            requirements of this subparagraph if and only if the
            weighted average of - 
                (aa) the percentage of the corporation's gross income
              from all sources that is active foreign business income
              (as defined in subparagraph (B) of section 861(c)(1) (as
              in effect before the date of the enactment of this
              subsection)) for the portion of the testing period that
              includes taxable years beginning before January 1, 2011,
              and
                (bb) the percentage of the corporation's gross income
              from all sources that is active foreign business income
              (as defined in clause (ii) of this subparagraph) for the
              portion of the testing period, if any, that includes
              taxable years beginning on or after January 1, 2011,

            is at least 80 percent, and
              (II) the active foreign business percentage for such
            taxable year shall equal the weighted average percentage
            determined under subclause (I).
      (2) Active foreign business percentage
        Except as provided in paragraph (1)(B)(iv), the term "active
      foreign business percentage" means, with respect to any existing
      80/20 company, the percentage which - 
          (A) the active foreign business income of such company for
        the testing period, is of
          (B) the gross income of such company for the testing period
        from all sources.
      (3) Aggregation rules
        For purposes of applying paragraph (1) (other than
      subparagraphs (A)(i) and (B)(iv) thereof) and paragraph (2) - 
        (A) In general
          The corporation referred to in paragraph (1)(A) and all of
        such corporation's subsidiaries shall be treated as one
        corporation.
        (B) Subsidiaries
          For purposes of subparagraph (A), the term "subsidiary" means
        any corporation in which the corporation referred to in
        subparagraph (A) 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 and without regard to section 1504(b)(3)).
      (4) Regulations
        The Secretary may issue such regulations or other guidance as
      is necessary or appropriate to carry out the purposes of this
      section, including regulations or other guidance which provide
      for the proper application of the aggregation rules described in
      paragraph (3).
    (m) Treatment of dividend equivalent payments
      (1) In general
        For purposes of subsection (a), sections 881 and 4948(a), and
      chapters 3 and 4, a dividend equivalent shall be treated as a
      dividend from sources within the United States.
      (2) Dividend equivalent
        For purposes of this subsection, the term "dividend equivalent"
      means - 
          (A) any substitute dividend made pursuant to a securities
        lending or a sale-repurchase transaction that (directly or
        indirectly) is contingent upon, or determined by reference to,
        the payment of a dividend from sources within the United
        States,
          (B) any payment made pursuant to a specified notional
        principal contract that (directly or indirectly) is contingent
        upon, or determined by reference to, the payment of a dividend
        from sources within the United States, and
          (C) any other payment determined by the Secretary to be
        substantially similar to a payment described in subparagraph
        (A) or (B).
      (3) Specified notional principal contract
        For purposes of this subsection, the term "specified notional
      principal contract" means - 
          (A) any notional principal contract if - 
            (i) in connection with entering into such contract, any
          long party to the contract transfers the underlying security
          to any short party to the contract,
            (ii) in connection with the termination of such contract,
          any short party to the contract transfers the underlying
          security to any long party to the contract,
            (iii) the underlying security is not readily tradable on an
          established securities market,
            (iv) in connection with entering into such contract, the
          underlying security is posted as collateral by any short
          party to the contract with any long party to the contract, or
            (v) such contract is identified by the Secretary as a
          specified notional principal contract,

          (B) in the case of payments made after the date which is 2
        years after the date of the enactment of this subsection, any
        notional principal contract unless the Secretary determines
        that such contract is of a type which does not have the
        potential for tax avoidance.
      (4) Definitions
        For purposes of paragraph (3)(A) - 
        (A) Long party
          The term "long party" means, with respect to any underlying
        security of any notional principal contract, any party to the
        contract which is entitled to receive any payment pursuant to
        such contract which is contingent upon, or determined by
        reference to, the payment of a dividend from sources within the
        United States with respect to such underlying security.
        (B) Short party
          The term "short party" means, with respect to any underlying
        security of any notional principal contract, any party to the
        contract which is not a long party with respect to such
        underlying security.
        (C) Underlying security
          The term "underlying security" means, with respect to any
        notional principal contract, the security with respect to which
        the dividend referred to in paragraph (2)(B) is paid. For
        purposes of this paragraph, any index or fixed basket of
        securities shall be treated as a single security.
      (5) Payments determined on gross basis
        For purposes of this subsection, the term "payment" includes
      any gross amount which is used in computing any net amount which
      is transferred to or from the taxpayer.
      (6) Prevention of over-withholding
        In the case of any chain of dividend equivalents one or more of
      which is subject to tax under subsection (a) or section 881, the
      Secretary may reduce such tax, but only to the extent that the
      taxpayer can establish that such tax has been paid with respect
      to another dividend equivalent in such chain, or is not otherwise
      due, or as the Secretary determines is appropriate to address the
      role of financial intermediaries in such chain. For purposes of
      this paragraph, a dividend shall be treated as a dividend
      equivalent.
      (7) Coordination with chapters 3 and 4
        For purposes of chapters 3 and 4, each person that is a party
      to any contract or other arrangement that provides for the
      payment of a dividend equivalent shall be treated as having
      control of such payment.
    (n) Cross references
          (1) For tax treatment of certain amounts distributed by the
        United States to nonresident alien individuals, see section
        402(e)(2).
          (2) For taxation of nonresident alien individuals who are
        expatriate United States citizens, see section 877.
          (3) For doubling of tax on citizens of certain foreign
        countries, see section 891.
          (4) For adjustment of tax in case of nationals or residents
        of certain foreign countries, see section 896.
          (5) For withholding of tax at source on nonresident alien
        individuals, see section 1441.
          (6) For election to treat married nonresident alien
        individual as resident of United States in certain cases, see
        subsections (g) and (h) of section 6013.
          (7) For special tax treatment of gain or loss from the
        disposition by a nonresident alien individual of a United
        States real property interest, see section 897.