
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document affected by Public Law 107-16 Section 621(a)]
[Document affected by Public Law 107-16 Section 621(b)]
[CITE: 26USC861]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
  Subchapter N--Tax Based on Income From Sources Within or Without the 
                              United States
 
 PART I--SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN INCOME
 
Sec. 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), and
            (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.

                            (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, except for purposes of sections 79 and 105 and 
    subchapter D, 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).

(Aug. 16, 1954, ch. 736, 68A Stat. 275; Pub. L. 86-779, Sec. 3(b), Sept. 
14, 1960, 74 Stat. 998; Pub. L. 87-834, Sec. 9(c), Oct. 16, 1962, 76 
Stat. 1001; Pub. L. 89-809, title I, Sec. 102(a)(1)-(3), (b), (c), Nov. 
13, 1966, 80 Stat. 1541-1543; Pub. L. 91-172, title IV, Sec. 435(a), 
Dec. 30, 1969, 83 Stat. 625; Pub. L. 92-9, Sec. 3(a)(2), Apr. 1, 1971, 
85 Stat. 15; Pub. L. 92-178, title III, Sec. 314(a), title V, Sec. 503, 
Dec. 10, 1971, 85 Stat. 528, 550; Pub. L. 93-625, Secs. 8, 9(a), Jan. 3, 
1975, 88 Stat. 2116; Pub. L. 94-455, title X, Secs. 1036(a), 1041, 
1051(h)(3), title XIX, Secs. 1901(b)(26)(A), (B), (c)(7), 
1904(b)(10)(B), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1633, 1634, 1647, 
1798, 1803, 1817, 1834; Pub. L. 95-30, title I, Sec. 102(b)(9), May 23, 
1977, 91 Stat. 138; Pub. L. 95-600, title III, Sec. 370(a), title V, 
Sec. 540(a), Nov. 6, 1978, 92 Stat. 2858, 2887; Pub. L. 96-499, title 
XI, Sec. 1124, Dec. 5, 1980, 94 Stat. 2690; Pub. L. 96-605, title I, 
Sec. 104(a), Dec. 28, 1980, 94 Stat. 3523; Pub. L. 98-21, title I, 
Sec. 121(d), Apr. 20, 1983, 97 Stat. 83; Pub. L. 99-514, title I, 
Sec. 104(b)(11), title XII, Secs. 1211(b)(1)(B), 1212(d), 1214(a), (b), 
(c)(5), 1241(b), Oct. 22, 1986, 100 Stat. 2105, 2536, 2539, 2541-2543, 
2579; Pub. L. 100-203, title X, Sec. 10221(d)(4), Dec. 22, 1987, 101 
Stat. 1330-409; Pub. L. 100-647, title I, Secs. 1012(g)(3), (i)(10), 
(14)(B), (q)(7), (9), (15), 1018(u)(39), Nov. 10, 1988, 102 Stat. 3501, 
3509, 3510, 3524, 3525, 3592; Pub. L. 101-239, title VII, 
Secs. 7811(i)(2), 7841(d)(9), Dec. 19, 1989, 103 Stat. 2409, 2428; Pub. 
L. 101-508, title XI, Secs. 11801(a)(29), (c)(6)(C), (14), 11813(b)(17), 
Nov. 5, 1990, 104 Stat. 1388-521, 1388-524, 1388-527, 1388-555; Pub. L. 
104-188, title I, Sec. 1702(h)(9), Aug. 20, 1996, 110 Stat. 1874; Pub. 
L. 105-34, title XI, Sec. 1174(a)(1), Aug. 5, 1997, 111 Stat. 989.)


                               Amendments

    1997--Subsec. (a)(3). Pub. L. 105-34 inserted concluding provisions 
``In addition, except for purposes of sections 79 and 105 and subchapter 
D, 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.''
    1996--Subsec. (e)(1)(A). Pub. L. 104-188 provided that the amendment 
made by section 11813(b)(17) of Pub. L. 101-508 shall be applied as if 
the material stricken by such amendment included the closing parenthesis 
after ``section 48(a)(5)''. See 1990 Amendment note below.
    1990--Subsec. (a)(1)(A), (B). Pub. L. 101-508, Sec. 11801(a)(29), 
(c)(14), inserted ``and'' at end of subpar. (A), substituted a period 
for a comma at end of subpar. (B), and struck out subpars. (C) and (D) 
which read as follows:
    ``(C) interest on a debt obligation which was part of an issue with 
respect to which an election has been made under subsection (c) of 
section 4912 (as in effect before July 1, 1974) and which, when issued 
(or treated as issued under subsection (c)(2) of such section), had a 
maturity not exceeding 15 years and, when issued, was purchased by one 
or more underwriters with a view to distribution through resale, but 
only with respect to interest attributable to periods after the date of 
such election, and
    ``(D) interest on a debt obligation which was part of an issue 
which--
        ``(i) was part of an issue outstanding on April 1, 1971,
        ``(ii) was guaranteed by a United States person,
        ``(iii) was treated under chapter 41 as a debt obligation of a 
    foreign obligor,
        ``(iv) as of June 30, 1974, had a maturity of not more than 15 
    years, and
        ``(v) when issued, was purchased by one or more underwriters for 
    the purpose of distribution through resale.''
    Subsec. (e)(1)(A). Pub. L. 101-508, Sec. 11813(b)(17), which 
directed the substitution of ``which is section 1245 property (as 
defined in section 1245(a)(3))'' for ``which is section 38 property (or 
would be section 38 property but for section 48(a)(5)'', was executed by 
making the substitution for ``which is section 38 property (or would be 
section 38 property but for section 48(a)(5))''. See 1996 Amendment note 
above.
    Subsec. (e)(2). Pub. L. 101-508, Sec. 11801(c)(6)(C), substituted 
``all of whose stock is owned by one or more domestic common carriers by 
railroad'' for ``referred to in subparagraph (B) of section 184(d)(1)''.
    1989--Subsec. (a)(6). Pub. L. 101-239, Sec. 7811(i)(2), substituted 
``865(i)(1)'' for ``865(h)(1)''.
    Subsec. (e)(1). Pub. L. 101-239, Sec. 7841(d)(9), substituted 
``section 862(a)'' for ``section 826(a)'' in introductory provisions.
    1988--Subsec. (a)(2)(B). Pub. L. 100-647, Sec. 1012(q)(7), 
substituted ``other than income described in section 884(d)(2)'' for 
``other than under section 884(d)(2)'' in two places.
    Subsec. (a)(2)(C). Pub. L. 100-647, Sec. 1012(q)(15), substituted 
``section 243(e)'' for ``section 243(d)''.
    Subsec. (a)(6). Pub. L. 100-647, Sec. 1018(u)(39), substituted 
``inventory property'' for ``personal property'' in heading.
    Subsec. (a)(7). Pub. L. 100-647, Sec. 1012(i)(10), amended par. (7) 
generally. Prior to amendment, par. (7) read as follows: ``Amounts 
received as underwriting income (as defined in section 832(b)(3)) 
derived from the insurance of United States risks (as defined in section 
953(a)).''
    Subsec. (c)(1)(B). Pub. L. 100-647, Sec. 1012(g)(3), inserted ``or, 
in the case of a corporation, is attributable to income so derived by a 
subsidiary of such corporation'' after parenthetical in cl. (i), struck 
out ``or chain of subsidiaries of such corporation'' after ``by a 
subsidiary'' in cl. (ii), and inserted sentence at end defining 
``subsidiary''.
    Subsec. (c)(2)(B)(ii). Pub. L. 100-647, Sec. 1012(i)(14)(B), amended 
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: ``such 
section shall be applied by substituting `10 percent' for `50 percent' 
each place it appears.''
    Subsec. (f). Pub. L. 100-647, Sec. 1012(g)(9), added subsec. (f).
    1987--Subsec. (a)(2). Pub. L. 100-203, Sec. 10221(d)(4)(B), inserted 
at end ``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'.''
    Subsec. (a)(2)(B). Pub. L. 100-203, Sec. 10221(d)(4)(A), which 
directed that subpar. (B) be amended by substituting ``100/70th'' for 
``100/85th'', was executed by substituting ``100/70th'' for ``100/
85ths'' to reflect the probable intent of Congress.
    1986--Subsec. (a)(1). Pub. L. 99-514, Sec. 1241(b)(1)(A), 
substituted ``noncorporate residents or domestic corporations'' for 
``residents, corporate or otherwise,'' in introductory text.
    Subsec. (a)(1)(A). Pub. L. 99-514, Sec. 1214(a)(1), (c)(5)(A), 
amended subpar. (B) generally and redesignated it as (A). Prior to 
amendment and redesignation, former subpar. (B) read as follows: 
``interest received from a resident alien individual or a domestic 
corporation, when it is shown to the satisfaction of the Secretary that 
less than 20 percent of the gross income from all sources of such 
individual or such corporation has been derived from sources within the 
United States, as determined under the provisions of this part, for the 
3-year period ending with the close of the taxable year of such 
individual or such corporation preceding the payment of such interest, 
or for such part of such period as may be applicable,''. Former subpar. 
(A), which read ``interest on amounts described in subsection (c) 
received by a nonresident alien individual or a foreign corporation, if 
such interest is not effectively connected with the conduct of a trade 
or business within the United States,'', was struck out.
    Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 1241(b)(1)(B), redesignated 
subpar. (D), as previously redesignated and amended by 
Sec. 1214(c)(5)(A), (B) of Pub. L. 99-514, as (B) and struck out former 
subpar. (B) [previously (C)] which read as follows: ``interest received 
from a foreign corporation (other than interest paid or credited by a 
domestic branch of a foreign corporation, if such branch is engaged in 
the commercial banking business), when it is shown to the satisfaction 
of the Secretary that less than 50 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 payment of such interest (or 
for such part of such period as the corporation has been in existence) 
was effectively connected with the conduct of a trade or business within 
the United States,''.
    Pub. L. 99-514, Sec. 1214(c)(5)(A), (B), redesignated former subpar. 
(F) as (D), substituted in cl. (ii), ``subparagraph (B) of section 
871(i)(3)'' for ``paragraph (2) of subsection (c)'', and redesignated 
former subpar. (C) as (B). Former subpar. (B) redesignated (A).
    Subsec. (a)(1)(C). Pub. L. 99-514, Sec. 1241(b)(1)(B), redesignated 
subpar. (E), as previously redesignated by Sec. 1214(c)(5)(A) of Pub. L. 
99-514, as (C) and struck out former subpar. (C) [previously (D)] which 
read as follows: ``in the case of interest received from a foreign 
corporation (other than interest paid or credited by a domestic branch 
of a foreign corporation, if such branch is engaged in the commercial 
banking business), 50 percent or more of the gross income of which from 
all sources for the 3-year period ending with the close of its taxable 
year preceding the payment of such interest (or for such part of such 
period as the corporation has been in existence) was effectively 
connected with the conduct of a trade or business within the United 
States, an amount of such interest which bears the same ratio to such 
interest as the gross income of such foreign corporation for such period 
which was not effectively connected with the conduct of a trade or 
business within the United States bears to its gross income from all 
sources,''.
    Pub. L. 99-514, Sec. 1214(c)(5)(A), redesignated subpar. (D) as (C). 
Former subpar. (C) redesignated (B).
    Subsec. (a)(1)(D). Pub. L. 99-514, Sec. 1214(c)(5)(A), redesignated 
subpar. (H) as (F). Pub. L. 99-514, Sec. 1241(b)(1)(B), then 
redesignated such subpar. (F) as (D). The original subpar. (D) was 
redesignated (C) and struck out, and the original subpar. (F) was 
redesignated (D), then (B).
    Subsec. (a)(1)(E). Pub. L. 99-514, Sec. 1241(b)(1)(B), redesignated 
subpar. (E), as previously redesignated by Sec. 1214(c)(5)(A) of Pub. L. 
99-514, as (C).
    Pub. L. 99-514, Sec. 1214(c)(5)(A), redesignated subpar. (G) as (E) 
and struck out former subpar. (E) which read as follows: ``income 
derived by a foreign central bank of issue from bankers' acceptances,''.
    Subsec. (a)(1)(F). Pub. L. 99-514, Secs. 1214(c)(5)(A), 
1241(b)(1)(B), redesignated successively former subpar. (F) as (D) and 
(B), respectively.
    Subsec. (a)(1)(G). Pub. L. 99-514, Secs. 1214(c)(5)(A), 
1241(b)(1)(B), redesignated successively former subpar. (G) as (E) and 
(C), respectively.
    Subsec. (a)(1)(H). Pub. L. 99-514, Secs. 1214(c)(5)(A), 
1241(b)(1)(B), redesignated successively former subpar. (H) as (F) and 
(D), respectively.
    Subsec. (a)(2)(A). Pub. L. 99-514, Sec. 1214(b), amended subpar. (A) 
generally. Prior to amendment, subpar. (A) read as follows: ``from a 
domestic corporation other than a corporation which has an election in 
effect under section 936, and other than a corporation less than 20 
percent of whose gross income is shown to the satisfaction of the 
Secretary to have been derived from sources within the United States, as 
determined under the provisions of this part, for the 3-year period 
ending with the close of the taxable year of such corporation preceding 
the declaration of such dividends (or for such part of such period as 
the corporation has been in existence), or''.
    Subsec. (a)(2)(B). Pub. L. 99-514, Sec. 1241(b)(2), substituted ``25 
percent'' for ``50 percent'' and inserted ``(or treated as effectively 
connected other than under section 884(d)(2))'' in two places.
    Subsec. (a)(6). Pub. L. 99-514, Sec. 1211(b)(1)(B), substituted 
``inventory property (within the meaning of section 865(h)(1))'' for 
``personal property''.
    Subsec. (b). Pub. L. 99-514, Sec. 104(b)(11), substituted ``the 
standard deduction'' for ``the zero bracket amount''.
    Subsec. (c). Pub. L. 99-514, Sec. 1214(a)(2), amended subsec. (c) 
generally, substituting provisions relating to foreign business 
requirements for provisions relating to interest on deposits.
    Subsec. (d). Pub. L. 99-514, Sec. 1214(c)(5)(C), amended subsec. (d) 
generally, substituting provision for special rule for application of 
subsec. (a)(2)(B) for former provision for special rules for application 
of subsec. (a), pars. (1)(B) to (1)(D) and (2)(B), pars. (1) and (2) 
thereof relating to new entities and transition rule provisions.
    Subsecs. (e), (f). Pub. L. 99-514, Sec. 1212(d), redesignated 
subsec. (f) as (e) and struck out former subsec. (e) relating to 
treatment of income from certain leased aircraft, vessels, and 
spacecraft as income from sources within the United States.
    1983--Subsec. (a)(8). Pub. L. 98-21 added par. (8).
    1980--Subsec. (a)(5). Pub. L. 96-499 substituted ``Disposition of 
United States real property interest'' for ``Sale or exchange of real 
property'' in heading and ``disposition of a United States real property 
interest (as defined in section 897(c))'' for ``sale or exchange of real 
property located in the United States'' in text.
    Subsec. (e). Pub. L. 96-605 substituted provision directing that 
income from certain leased aircraft, vessels, and spacecraft be treated 
as income from sources within the United States for provision permitting 
the taxpayer to elect to treat income from certain aircraft and vessels 
as income from sources within the United States and prescribing the 
manner of revocating such an election.
    1978--Subsec. (a)(1)(F). Pub. L. 95-600, Sec. 540(a), designated 
existing provisions as cl. (i) and added cl. (ii).
    Subsec. (f). Pub. L. 95-600, Sec. 370(a), added subsec. (f).
    1977--Subsec. (b). Pub. L. 95-30 provided that, in the case of an 
individual who does not itemize deductions, an amount equal to the zero 
bracket amount shall be considered a deduction which cannot definitely 
be allocated to some item or class of gross income.
    1976--Subsec. (a)(1). Pub. L. 94-455, Secs. 1901(c)(7), 
1904(b)(10)(B), struck out ``, any Territory, any political subdivision 
of a Territory,'' after ``United States'' in provisions preceding 
subpar. (A) and, in subpar. (G), substituted ``subsection (c) of section 
4912 (as in effect before July 1, 1974)'' for ``section 4912(c)'' and 
``subsection (c)(2) of such section'' for ``section 4912(c)(2)''.
    Subsec. (a)(2)(A). Pub. L. 94-455, Secs. 1051(h)(3), 1906(b)(13)(A), 
substituted ``other than a corporation which has an election in effect 
under section 936'' for ``other than a corporation entitled to the 
benefits of section 931'' and struck out ``or his delegate'' after 
``Secretary''.
    Subsec. (a)(2)(D). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out 
``or his delegate'' after ``Secretary''.
    Subsec. (a)(5), (6). Pub. L. 94-455, Sec. 1901(b)(26)(A), 
substituted ``sale or exchange'' for ``sale'' in headings and text.
    Subsec. (a)(7). Pub. L. 94-455, Sec. 1036(a), added par. (7).
    Subsec. (c)(3). Pub. L. 94-455, Sec. 1041, struck out provision that 
subsecs. (a)(1)(A) and (c) would cease to apply effective with respect 
to amounts paid or credited after Dec. 31, 1976.
    Subsec. (e)(1). Pub. L. 94-455, Sec. 1901(b)(26)(B), substituted 
``sale, exchange, or other disposition'' for ``sale or other 
disposition''.
    Subsecs. (e)(2), (3). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck 
out ``or his delegate'' after ``Secretary''.
    1975--Subsec. (a)(1)(H). Pub. L. 93-625, Sec. 9(a), added subpar. 
(H).
    Subsec. (c)(3). Pub. L. 93-625, Sec. 8, substituted ``1976'' for 
``1975''.
    1971--Subsec. (a)(1)(G). Pub. L. 92-9 added subpar. (G).
    Subsec. (a)(2)(D). Pub. L. 92-178, Sec. 503, added subpar. (D).
    Subsec. (e). Pub. L. 92-178, Sec. 314(a), added subsec. (e).
    1969--Subsec. (a)(1)(C), (D). Pub. L. 91-172, Sec. 435(a)(1), struck 
out ``after December 31, 1972,'' after ``interest paid or credited'' in 
parenthetical after ``interest received from a foreign corporation''.
    Subsec. (c)(3). Pub. L. 91-172, Sec. 435(a)(2), substituted ``1975'' 
for ``1972''.
    1966--Subsec. (a)(1)(A). Pub. L. 89-809, Sec. 102(a)(1)(A), 
substituted ``interest on amounts described in subsection (c) received 
by a nonresident alien individual or a foreign corporation, if such 
interest is not effectively connected with the conduct of a trade or 
business within the United States'' for ``interest on deposits with 
persons carrying on the banking business paid to persons not engaged in 
business within the United States''.
    Subsec. (a)(1)(B). Pub. L. 89-809, Sec. 102(a)(2), struck out 
interest received from a resident foreign corporation, and substituted 
``gross income from all sources of such individual or such corporation'' 
for ``gross income of such resident payor or domestic corporation'', and 
``taxable year of such individual or such corporation'' for ``taxable 
year of such payor''.
    Subsec. (a)(1)(C) to (F). Pub. L. 89-809, Sec. 102(a)(2), added 
subpars. (C), (D), and (F), and redesignated former subpar. (C) as (E).
    Subsec. (a)(2)(B). Pub. L. 89-809, Sec. 102(b), substituted ``50 
percent of the gross income from all sources'' for ``50 percent of the 
gross income'', ``effectively connected with the conduct of a trade or 
business within the United States'' for ``derived from sources within 
the United States as determined from the provisions of this part'', and 
``ratio to such dividends as the gross income of the corporation for 
such period which was effectively connected with the conduct of a trade 
or business within the United States bears to its gross income from all 
sources'' for ``ratio to such dividends as the gross income of the 
corporation for such period derived from sources within the United 
States bears to its gross income from all sources'' and inserted 
``(other than dividends for which a deduction is allowable under section 
245(b))'' after ``dividends'' and ``(and only to the extent)'' after 
``extent''.
    Subsec. (a)(3)(C)(ii). Pub. L. 89-809, Sec. 102(c), inserted ``an 
individual who is a citizen or resident of the United States, a domestic 
partnership, or'' before ``a domestic corporation'' and ``individual, 
partnership, or'' after ``United States by such''.
    Subsecs. (c), (d). Pub. L. 89-809, Sec. 102(a)(1)(B), (3), added 
subsecs. (c) and (d).
    1962--Subsec. (a)(2)(B). Pub. L. 87-834 substituted ``to the extent 
exceeding the amount which is 100/85ths of the amount of the deduction 
allowable under section 245 in respect of such dividends'' for ``to the 
extent exceeding the amount of the deduction allowable under section 245 
in respect of such dividends.''
    1960--Subsec. (a)(2)(C). Pub. L. 86-779 added subpar. (C).


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-34 applicable to remuneration for services 
performed in taxable years beginning after Dec. 31, 1997, see section 
1174(c) of Pub. L. 105-34, set out as a note under section 7701 of this 
title.


                    Effective Date of 1996 Amendment

    Amendment by Pub. L. 104-188 effective, except as otherwise 
expressly provided, as if included in the provision of the Revenue 
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which such 
amendment relates, see section 1702(i) of Pub. L. 104-188, set out as a 
note under section 38 of this title.


                    Effective Date of 1990 Amendment

    Amendment by section 11813(b)(17) of Pub. L. 101-508 applicable to 
property placed in service after Dec. 31, 1990, but not applicable to 
any transition property (as defined in section 49(e) of this title), any 
property with respect to which qualified progress expenditures were 
previously taken into account under section 46(d) of this title, and any 
property described in section 46(b)(2)(C) of this title, as such 
sections were in effect on Nov. 4, 1990, see section 11813(c) of Pub. L. 
101-508, set out as a note under section 29 of this title.


                    Effective Date of 1989 Amendment

    Amendment by section 7811(i)(2) of Pub. L. 101-239 effective, except 
as otherwise provided, as if included in the provision of the Technical 
and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such 
amendment relates, see section 7817 of Pub. L. 101-239, set out as a 
note under section 1 of this title.


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 effective, except as otherwise 
provided, as if included in the provision of the Tax Reform Act of 1986, 
Pub. L. 99-514, to which such amendment relates, see section 1019(a) of 
Pub. L. 100-647, set out as a note under section 1 of this title.


                    Effective Date of 1987 Amendment

    Amendment by Pub. L. 100-203 applicable to dividends received or 
accrued after Dec. 31, 1987, in taxable years ending after such date, 
see section 10221(e)(1) of Pub. L. 100-203, set out as a note under 
section 243 of this title.


                    Effective Date of 1986 Amendment

    Amendment by section 104(b)(11) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, see section 151(a) of Pub. 
L. 99-514, set out as a note under section 1 of this title.
    Amendment by section 1211(b)(1)(B) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, except as otherwise 
provided, see section 1211(c) of Pub. L. 99-514, set out as an Effective 
Date note under section 865 of this title.
    Amendment by section 1212(d) of Pub. L. 99-514 applicable to taxable 
years beginning after Dec. 31, 1986, with special rules for certain 
leased property and for certain ships leased by United States Navy, see 
section 1212(f) of Pub. L. 99-514, set out as a note under section 863 
of this title.
    Section 1214(d) of Pub. L. 99-514, as amended by Pub. L. 100-647, 
title I, Sec. 1012(g)(1)(A), (2), Nov. 10, 1988, 102 Stat. 3500, 3501, 
provided that:
    ``(1) In general.--The amendments made by this section [amending 
this section and sections 871, 881, 1441, and 6049 of this title] shall 
apply to payments made in a taxable year of the payor beginning after 
December 31, 1986.
    ``(2) Treatment of certain interest.--
        ``(A) In general.--The amendments made by this section shall not 
    apply to any interest paid or accrued on any obligation outstanding 
    on December 31, 1985. The preceding sentence shall not apply to any 
    interest paid pursuant to any extension or renewal of such an 
    obligation agreed to after December 31, 1985.
        ``(B) Special rule for related payee.--If the payee of any 
    interest to which subparagraph (A) applies is related (within the 
    meaning of section 904(d)(2)(H) of the Internal Revenue Code of 
    1986) to the payor, such interest shall be treated for purposes of 
    section 904 of such Code as if the payor were a controlled foreign 
    corporation (within the meaning of section 957(a) of such Code).
    ``(3) Transitional rule.--
        ``(A) Years before 1988.--In applying the amendments made by 
    this section to any payment made by a corporation in a taxable year 
    of such corporation beginning before January 1, 1988, the 
    requirements of clause (ii) of section 861(c)(1)(B) of the Internal 
    Revenue Code of 1986 (relating to active business requirements), as 
    amended by this section, shall not apply to gross income of such 
    corporation for taxable years beginning before January 1, 1987.
        ``(B) Years after 1987.--In applying the amendments made by this 
    section to any payment made by a corporation in a taxable year of 
    such corporation beginning after December 31, 1987, the testing 
    period for purposes of section 861(c) of such Code (as so amended) 
    shall not include any taxable year beginning before January 1, 1987.
    ``(4) Certain dividends.--
        ``(A) In general.--The amendments made by this section shall not 
    apply to any dividend paid before January 1, 1991, by a qualified 
    corporation with respect to stock which was outstanding on May 31, 
    1985.
        ``(B) Qualified corporation.--For purposes of subparagraph (A), 
    the term `qualified corporation' means any business systems 
    corporation which--
            ``(i) was incorporated in Delaware in February, 1979,
            ``(ii) is headquartered in Garden City, New York, and
            ``(iii) the parent corporation of which is a resident of 
        Sweden.''
    [Section 1012(g)(1)(B) of Pub. L. 100-647 provided that: ``A 
taxpayer may elect not to have the amendment made by subparagraph (A) 
[amending section 1214(d)(1) of Pub. L. 99-514, set out above] apply and 
to have section 1214(d)(1) of the Reform Act [section 1214(d)(1) of Pub. 
L. 99-514, set out above] apply as in effect before such amendment. Such 
election shall be made at such time and in such manner as the Secretary 
of the Treasury or his delegate may prescribe.'']
    Amendment by section 1241(b) of Pub. L. 99-514 applicable to taxable 
years beginning after Dec. 31, 1986, see section 1241(e) of Pub. L. 99-
514, set out as an Effective Date note under section 884 of this title.


                    Effective Date of 1983 Amendment

    Amendment by Pub. L. 98-21 applicable to benefits received after 
Dec. 31, 1983, in taxable years ending after such date, except for any 
portion of a lump-sum payment of social security benefits received after 
Dec. 31, 1983, if the generally applicable payment date for such portion 
was before Jan. 1, 1984, see section 121(g) of Pub. L. 98-21, set out as 
an Effective Date note under section 86 of this title.


                    Effective Date of 1980 Amendments

    Section 104(b) of Pub. L. 96-605 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to property first 
leased after the date of the enactment of this Act [Dec. 28, 1980].''
    Amendment by Pub. L. 96-499 applicable to dispositions after June 
18, 1980, see section 1125(a) of Pub. L. 96-499, set out as an Effective 
Date note under section 897 of this title.


                    Effective Date of 1978 Amendment

    Section 370(b) of Pub. L. 95-600 provided that:
    ``(1) In general.--The amendment made by subsection (a) [amending 
this section] shall apply to all railroad rolling stock placed in 
service with respect to the taxpayer after the date of the enactment of 
this Act [Nov. 6, 1978].
    ``(2) Election to extend section 861(f) to railroad rolling stock 
placed in service before date of enactment.
        ``(A) In general.--At the election of the taxpayer, the 
    amendment made by subsection (a) shall also apply, for taxable years 
    beginning after the date of the enactment of this Act, to all 
    railroad rolling stock placed in service with respect to the 
    taxpayer on or before such date of enactment. Such an election may 
    not be revoked except with the consent of the Secretary of the 
    Treasury or his delegate.
        ``(B) Manner and time of election and revocation.--An election 
    under subparagraph (A), and any revocation of such an election, 
    shall be made in such manner and at such time as the Secretary of 
    the Treasury or his delegate may by regulations prescribe.''
    Section 540(b) of Pub. L. 95-600 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to taxable years 
beginning after the date of the enactment of this Act [Nov. 6, 1978].''


                    Effective Date of 1977 Amendment

    Amendment by Pub. L. 95-30 applicable to taxable years beginning 
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out as a 
note under section 1 of this title.


                    Effective Date of 1976 Amendment

    Section 1036(c) of Pub. L. 94-455 provided that: ``The amendments 
made by this section [amending this section and section 862 of this 
title] shall apply to taxable years beginning after December 31, 1976.''
    For effective date of amendment by section 1051(h)(3) of Pub. L. 94-
455, see section 1051(i)(1) of Pub. L. 94-455, set out as a note under 
section 27 of this title.
    Amendment by section 1901(b)(26)(A), (B), (c)(7) of Pub. L. 94-455 
effective for taxable years beginning after Dec. 31, 1976, see section 
1901(d) of Pub. L. 94-455, set out as a note under section 2 of this 
title.
    Amendment by section 1904(b)(10)(B) of Pub. L. 94-455 effective on 
first day of first month which begins more than 90 days after date of 
enactment of this Act [Oct. 4, 1976], see section 1904(d) of Pub. L. 94-
455, set out as a note under section 4041 of this title.


                    Effective Date of 1975 Amendment

    Section 9(c) of Pub. L. 93-625 provided that: ``The amendment made 
by subsection (a) [amending this section] applies to interest paid after 
the date of enactment of this Act [Jan. 3, 1975], and the amendment made 
by subsection (b) [amending section 2104 of this title] applies with 
respect to estates of decedents dying after such date.''


                    Effective Date of 1971 Amendments

    Section 3(a)(3) of Pub. L. 92-9 provided that: ``The amendments made 
by this subsection [amending this section and section 4912 of this 
title] shall take effect on the date of the enactment of this Act [Apr. 
1, 1971].''
    Section 314(c) of Pub. L. 92-178 provided that: ``The amendments 
made by this section [amending this section and section 862 of this 
title] shall apply to taxable years ending after August 15, 1971, but 
only with respect to leases entered into after such date.''
    Amendment by section 503 of Pub. L. 92-178 applicable with respect 
to taxable years ending after Dec. 31, 1971, except that a corporation 
may not be a DISC for any taxable year beginning before Jan. 1, 1972, 
see section 507 of Pub. L. 92-178, set out as an Effective Date note 
under section 991 of this title.


                    Effective Date of 1969 Amendment

    Section 435(a)(1) of Pub. L. 91-172 provided that the amendment made 
by that section is effective with respect to amounts paid or credited 
after Dec. 31, 1969.


                    Effective Date of 1966 Amendment

    Section 102(e) of Pub. L. 89-809, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) The amendments made by subsections (a), (c), and (d) [amending 
this section and sections 864 and 895 of this title] shall apply with 
respect to taxable years beginning after December 31, 1966; except that 
in applying section 864(c)(4)(B)(iii) of the Internal Revenue Code of 
1986 [formerly I.R.C. 1954] (as added by subsection (d)) with respect to 
a binding contract entered into on or before February 24, 1966, 
activities in the United States on or before such date in negotiating or 
carrying out such contract shall not be taken into account.
    ``(2) The amendments made by subsection (b) [amending this section] 
shall apply with respect to amounts received after December 31, 1966.''


                    Effective Date of 1962 Amendment

    Amendment by Pub. L. 87-834 applicable in respect of any 
distribution received by a domestic corporation after Dec. 31, 1964, and 
in respect of any distribution received by a domestic corporation before 
Jan. 1, 1965, in a taxable year of such corporation beginning after Dec. 
31, 1962, but only to the extent that such distribution is made out of 
the accumulated profits of a foreign corporation for a taxable year (of 
such foreign corporation) beginning after Dec. 31, 1962, see section 
9(e) of Pub. L. 87-834, set out as a note under section 902 of this 
title.


                    Effective Date of 1960 Amendment

    Amendment by Pub. L. 86-779 applicable to dividends received after 
Dec. 31, 1959, in taxable years ending after such date, see section 3(c) 
of Pub. L. 86-779, set out as a note under section 243 of this title.


                      Short Title of 1971 Amendment

    Section 1(a) of Pub. L. 92-9 provided that: ``This Act [amending 
this section and sections 4911, 4912, 4914 to 4916, 4919 to 4921, 6651, 
6680, and 6681 of this title and enacting provisions set out as notes 
under this section and sections 6680 and 6681 of this title] may be 
cited as the `Interest Equalization Tax Extension Act of 1971'.''


                      Short Title of 1966 Amendment

    Section 101 of title I of Pub. L. 89-809 provided that: ``This title 
[enacting sections 877, 896, 906, 981, 2107, 2108, and 6683 of this 
title, amending this section and sections 1, 11, 116, 154, 245, 301, 
512, 542, 543, 545, 819, 821, 822, 831, 832, 841, 842, 864, 871, 872, 
873, 874, 875, 881, 882, 884, 894, 895, 901, 904, 911, 931, 932, 952, 
953, 1248, 1249, 1441, 1442, 1461, 2014, 2101, 2102, 2104, 2105, 2106, 
2501, 2511, 3401, 6015, 6016, 6018, 6501, 6513, and 7701 of this title, 
redesignating former section 877 as 878, repealing section 1493, and 
enacting provisions set out as notes under this section and sections 11, 
871, 874, 894, 901, 904, 931, 2101, 2501, and 6501 of this title] may be 
cited as the `Foreign Investors Tax Act of 1966'.''


                            Savings Provision

    For provisions that nothing in amendment by Pub. L. 101-508 be 
construed to affect treatment of certain transactions occurring, 
property acquired, or items of income, loss, deduction, or credit taken 
into account prior to Nov. 5, 1990, for purposes of determining 
liability for tax for periods ending after Nov. 5, 1990, see section 
11821(b) of Pub. L. 101-508, set out as a note under section 29 of this 
title.


                Dividends Received or Accrued During 1987

    Subsec. (a)(2)(B) of this section to be applied by substituting 
``100/80ths'' for the fraction specified therein with regard to 
dividends received or accrued during 1987, see section 1006(b)(1)(B) of 
Pub. L. 100-647 set out as a note under section 245 of this title.


  Applicability of Certain Amendments by Pub. L. 99-514 in Relation to 
                   Treaty Obligations of United States

    Section 1012(aa)(2)-(4) of title I of Pub. L. 100-647 provided that:
    ``(2) Certain amendments to apply notwithstanding treaties.--The 
following amendments made by the Reform Act [Pub. L. 99-514] shall apply 
notwithstanding any treaty obligation of the United States in effect on 
the date of the enactment of the Reform Act [Oct. 22, 1986]:
        ``(A) The amendments made by section 1201 of the Reform Act 
    [amending sections 864, 904, and 954 of this title].
        ``(B) The amendments made by title VII of the Reform Act 
    [enacting sections 53 and 55 to 59 of this title and amending 
    sections 5, 12, 26, 28, 29, 38, 48, 173, 174, 263, 381, 443, 703, 
    882, 897, 904, 936, 1016, 1363, 1366, 1561, 6154, 6425, and 6655 of 
    this title] to the extent such amendments relate to the alternative 
    minimum tax foreign tax credit.
    ``(3) Certain amendments not to apply to the extent inconsistent 
with treaties.--The following amendments made by the Reform Act [Pub. L. 
99-514] shall not apply to the extent the application of such amendments 
would be contrary to any treaty obligation of the United States in 
effect on the date of the enactment of the Reform Act [Oct. 22, 1986]:
        ``(A) The amendments made by section 1211 of the Reform Act 
    [enacting section 865 of this title and amending this section and 
    sections 862 to 864, 871, 881, and 904 of this title] to the 
    extent--
            ``(i) such amendments apply in the case of an individual 
        treated as a resident of a foreign country under a treaty 
        obligation of the United States as so in effect, or
            ``(ii) such amendments relate to income of a nonresident 
        from the sale or exchange of inventory property which would 
        otherwise be sourced under section 865(e)(2) of the 1986 Code.
        ``(B) The amendments made by section 1212(a) of the Reform Act 
    [amending section 863 of this title]; except for purposes of 
    determining the amount of the foreign tax credit.
        ``(C) The amendments made by subsections (b) and (c) of section 
    1212 of the Reform Act [enacting section 887 of this title and 
    amending sections 872 and 883 of this title].
        ``(D) The amendments made by section 1214 of the Reform Act 
    [amending this section and sections 871, 881, 1441, and 6049 of this 
    title]; except for purposes of determining the amount of the foreign 
    tax credit.
        ``(E) The amendment made by section 1241(a) of the Reform Act 
    [enacting section 884 of this title and renumbering former section 
    884 as 885] to the extent that, under a treaty obligation of the 
    United States, interest described in section 884(f)(1)(A) of the 
    1986 Code (as added by such amendment) which is in excess of amounts 
    deducted would be treated as other than United States source.
        ``(F) The amendment made by section 1241(b)(2)(A) of the Reform 
    Act [amending this section].
        ``(G) The amendment made by section 1241(a) of the Reform Act 
    [enacting section 884 of this title and renumbering former section 
    884 as 885] to the extent such amendment relates to section 
    884(f)(1)(B) of the 1986 Code.
        ``(H) The amendments made by section 1242 of the Reform Act 
    [amending section 864 of this title] to the extent they relate to 
    paragraph (7) of section 864(c) of the 1986 Code.
        ``(I) The amendment made by section 1247(a) of the Reform Act 
    [amending section 892 of this title].
        ``(J) The amendments made by section 123 of the Reform Act 
    [amending sections 74, 117, 1441, and 7871 of this title].
    ``(4) Treatment of technical corrections.--For purposes of 
paragraphs (2) and (3), any amendment made by this title [see Tables for 
classification] shall be treated as if it had been included in the 
provision of the Reform Act [Pub. L. 99-514] to which such amendment 
relates.''


    Qualified Research and Experimental Expenditures; Allocation and 
       Apportionment; Definitions; Special Rules; Effective Dates

    Section 4009 of Pub. L. 100-647 provided that:
    ``(a) General Rule.--For purposes of sections 861(b), 862(b), and 
863(b) of the 1986 Code, qualified research and experimental 
expenditures shall be allocated and apportioned as follows:
        ``(1) Any qualified research and experimental expenditures 
    expended solely to meet legal requirements imposed by a political 
    entity with respect to the improvement or marketing of specific 
    products or processes for purposes not reasonably expected to 
    generate gross income (beyond de minimis amounts) outside the 
    jurisdiction of the political entity shall be allocated only to 
    gross income from sources within such jurisdiction.
        ``(2) In the case of any qualified research and experimental 
    expenditures (not allocated under paragraph (1)) to the extent--
            ``(A) that such expenditures are attributable to activities 
        conducted in the United States, 64 percent of such expenditures 
        shall be allocated and apportioned to income from sources within 
        the United States and deducted from such income in determining 
        the amount of taxable income from sources within the United 
        States, and
            ``(B) that such expenditures are attributable to activities 
        conducted outside the United States, 64 percent of such 
        expenditures shall be allocated and apportioned to income from 
        sources outside the United States and deducted from such income 
        in determining the amount of taxable income from sources outside 
        the United States.
        ``(3) The remaining portion of qualified research and 
    experimental expenditures (not allocated under paragraphs (1) and 
    (2)) shall be apportioned, at the annual election of the taxpayer, 
    on the basis of gross sales or gross income, except that, if the 
    taxpayer elects to apportion on the basis of gross income, the 
    amount apportioned to income from sources outside the United States 
    shall be at least 30 percent of the amount which would be so 
    apportioned on the basis of gross sales.
    ``(b) Qualified Research and Experimental Expenditures.--For 
purposes of this section, the term `qualified research and experimental 
expenditures' means amounts which are research and experimental 
expenditures within the meaning of section 174 of the 1986 Code. For 
purposes of this subsection, rules similar to the rules of subsection 
(c) of section 174 of the 1986 Code shall apply.
    ``(c) Special Rules for Expenditures Attributable to Activities 
Conducted in Space, Etc.--
        ``(1) In general.--Any qualified research and experimental 
    expenditures described in paragraph (2)--
            ``(A) if incurred by a United States person, shall be 
        allocated and apportioned under this section in the same manner 
        as if they were attributable to activities conducted in the 
        United States, and
            ``(B) if incurred by a person other than a United States 
        person, shall be allocated and apportioned under this section in 
        the same manner as if they were attributable to activities 
        conducted outside the United States.
        ``(2) Description of expenditures.--For purposes of paragraph 
    (1), qualified research and experimental expenditures are described 
    in this paragraph if such expenditures are attributable to 
    activities conducted--
            ``(A) in space,
            ``(B) on or under water not within the jurisdiction (as 
        recognized by the United States) of a foreign country, 
        possession of the United States, or the United States, or
            ``(C) in Antarctica.
    ``(d) Affiliated Group.--
        ``(1) Except as provided in paragraph (2), the allocation and 
    apportionment required by subsection (a) shall be determined as if 
    all members of the affiliated group (as defined in subsection (e)(5) 
    of section 864 of the 1986 Code) were a single corporation.
        ``(2) For purposes of the allocation and apportionment required 
    by subsection (a)--
            ``(A) sales and gross income from products produced in whole 
        or in part in a possession by an electing corporation (within 
        the meaning of section 936(h)(5)(E) of the 1986 Code); and
            ``(B) dividends from an electing corporation,
    shall not be taken into account, except that this paragraph shall 
    not apply to sales of (and gross income and dividends attributable 
    to sales of) products with respect to which an election under 
    section 936(h)(5)(F) of the 1986 Code is not in effect.
        ``(3) The qualified research and experimental expenditures taken 
    into account for purposes of subsection (a) shall be adjusted to 
    reflect the amount of such expenditures included in computing the 
    cost-sharing amount (determined under section 936(h)(5)(C)(i)(I) of 
    the 1986 Code).
        ``(4) The Secretary of the Treasury or his delegate may 
    prescribe such regulations as may be necessary to carry out the 
    purposes of this subsection, including regulations providing for the 
    source of gross income and the allocation and apportionment of 
    deductions to take into account the adjustments required by 
    paragraph (3).
        ``(5) Paragraph (6) of section 864(e) of the 1986 Code shall not 
    apply to qualified research and experimental expenditures.
    ``(e) Years to Which Section Applies.--
        ``(1) In general.--Except as provided in this subsection, this 
    section shall apply to the taxpayer's 1st taxable year beginning 
    after August 1, 1987.
        ``(2) Reduction in amounts to which section applies.--
    Notwithstanding paragraph (1), this section shall only apply to that 
    portion of the qualified research and experimental expenditures for 
    the taxable year referred to in paragraph (1) which bears the same 
    ratio to the total amount of such expenditures as--
            ``(A) the lesser of 4 months or the number of months in the 
        taxable year, bears to
            ``(B) the number of months in the taxable year.''


1-Year Modification in Regulations Providing for Allocation of Research 
                      and Experimental Expenditures

    Section 1216 of Pub. L. 99-514 provided that:
    ``(a) General Rule.--For purposes of section 861(b), section 862(b), 
and section 863(b) of the Internal Revenue Code of 1954 [now 1986], 
notwithstanding section 864(e) of such Code--
        ``(1) 50 percent of all amounts allowable as a deduction for 
    qualified research and experimental expenditures shall be 
    apportioned to income from sources within the United States and 
    deducted from such income in determining the amount of taxable 
    income from sources within the United States, and
        ``(2) the remaining portion of such amounts shall be apportioned 
    on the basis of gross sales or gross income.
The preceding sentence shall not apply to any expenditures described in 
section 1.861-8(e)(3)(i)(B) of the Income Tax Regulations.
    ``(b) Qualified Research and Experimental Expenditures.--For 
purposes of this section--
        ``(1) In general.--The term `qualified research and experimental 
    expenditures' means amounts--
            ``(A) which are research and experimental expenditures 
        within the meaning of section 174 of such Code, and
            ``(B) which are attributable to activities conducted in the 
        United States.
        ``(2) Treatment of depreciation, etc.--Rules similar to the 
    rules of section 174(c) of such Code shall apply.
    ``(c) Effective Date.--This section shall apply to taxable years 
beginning after August 1, 1986, and on or before August 1, 1987.''


 Allocation Under Section 861 of Research and Experimental Expenditures

    Pub. L. 98-369, div. A, title I, Sec. 126, July 18, 1984, 98 Stat. 
648, as amended by Pub. L. 99-272, title XIII, Sec. 13211, Apr. 7, 1986, 
100 Stat. 324; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, 
provided that:
    ``(a) In General.--For purposes of section 861(b), section 862(b), 
and section 863(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 
1954], all amounts allowable as a deduction for qualified research and 
experimental expenditures shall be allocated to income from sources 
within the United States and deducted from such income in determining 
the amount of taxable income from sources within the United States.
    ``(b) Qualified Research and Experimental Expenditures.--For 
purposes of this section--
        ``(1) In general.--The term `qualified research and experimental 
    expenditures' means amounts--
            ``(A) which are research and experimental expenditures 
        within the meaning of section 174 of such Code, and
            ``(B) which are attributable to activities conducted in the 
        United States.
        ``(2) Treatment of depreciation, etc.--Rules similar to the 
    rules of subsection (c) of section 174 of such Code shall apply.
    ``(c) Effective Dates.--
        ``(1) In general.--This section shall apply to taxable years 
    beginning after August 13, 1983, and on or before August 1, 1986.
        ``(2) Special rule.--If the taxpayer's 4th taxable year 
    beginning after August 13, 1981, is not described in paragraph (1), 
    this section shall apply also to such 4th taxable year.''


Conformity of Amendments Made by Foreign Investors Tax Act of 1966 With 
                 Treaty Obligations of the United States

    Section 110 of title I of Pub. L. 89-809 provided that: ``No 
amendment made by this title [see Short Title note above] shall apply in 
any case where its application would be contrary to any treaty 
obligation of the United States. For purposes of the preceding sentence, 
the extension of a benefit provided by any amendment made by this title 
shall not be deemed to be contrary to a treaty obligation of the United 
States.''

                  Section Referred to in Other Sections

    This section is referred to in sections 79, 105, 410, 414, 505, 638, 
818, 862, 863, 864, 865, 871, 884, 904, 2104, 4948, 4980B of this title.
