Amended 1966
- 1966 Pub. L. 89-809 Pub. L. 89–809 substantially revised the income tax treatment of foreign corporations, introduced the concept of taxable income effectively connected with the conduct of a trade or business within the United States into provisions dealing with the imposition of tax, substituted a concept of gross income that included gross income derived from sources within the United States not effectively connected with the conduct of a trade or business within the United States and gross income effectively connected with the conduct of a trade or business within the United States for a concept of gross income that included only gross income from sources within the United States, and inserted provisions for an election to treat real property income as income connected with United States business, treatment of interest on United States obligations received by banks organized in possessions, and the returns of tax by agents, and inserted cross reference to section 906(b)(1).
Forms: Form 1120-F
Final rules 8
(a) Imposition of tax
Amended 1978
- 1978 Pub. L. 95-600 Pub. L. 95–600 substituted in subsec. (a) heading “Imposition of tax” for “Normal tax and surtax” and in par. (1) heading “In general” for “Imposition of tax”.
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(1) In general A foreign corporation engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 11, 55, or 59A, [OLRC note: So in original. The comma probably should not appear.] on its taxable income which is effectively connected with the conduct of a trade or business within the United States.
Amended 1986, 1988, 2014, 2017, 2022
- 2022 Pub. L. 117-169 Pub. L. 117–169 inserted “, 55,” after “section 11”.
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 14401(d)(2), which directed insertion of “or 59A,” after “section 11,”, was executed by making the insertion after “section 11” to reflect the probable intent of Congress and the amendment by Pub. L. 115–97, § 12001(b)(14). See below.
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13001(b)(2)(L), struck out “or 1201(a)” before “on its taxable income”.
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 12001(b)(14), struck out “, 55,” after “section 11”.
- 2014 Pub. L. 113-295 Pub. L. 113–295 struck out “, 59A” after “section 11, 55”.
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 2001(c)(2), inserted reference to section 59A.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 701(e)(4)(F), inserted reference to section 55.
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(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.
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(3) [Cross reference 22 Par. (3) heading editorially supplied.] For special tax treatment of gain or loss from the disposition by a foreign corporation of a United States real property interest, see section 897.
Amended 1980
- 1980 Pub. L. 96-499 Pub. L. 96–499 added par. (3).
(b) Gross income In the case of a foreign corporation, except where the context clearly indicates otherwise, gross income includes only—
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1012(s)(2)(B), inserted “, except where the context clearly indicates otherwise” after “foreign corporation”.
Cases: Tate & Lyle, Inc. v. Commissioner, 103 T.C. 656 (1994)
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(1) gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and
(2) gross income which is effectively connected with the conduct of a trade or business within the United States.
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(c) Allowance of deductions and credits
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(1) Allocation of deductions
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(A) General rule In the case of a foreign corporation, the deductions shall be allowed only for purposes of subsection (a) and (except as provided by subparagraph (B)) only if and to the extent that they are connected with income which is effectively connected with the conduct of a trade or business within the United States; and the proper apportionment and allocation of the deductions for this purpose shall be determined as provided in regulations prescribed by the Secretary.
Amended 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
(B) Charitable contributions The deduction for charitable contributions and gifts provided by section 170 shall be allowed whether or not connected with income which is effectively connected with the conduct of a trade or business within the United States.
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(2) Deductions and credits allowed only if return filed A foreign corporation shall receive the benefit of the deductions and credits allowed to it in this subtitle only by filing or causing to be filed with the Secretary a true and accurate return, in the manner prescribed in subtitle F, including therein all the information which the Secretary may deem necessary for the calculation of such deductions and credits. The preceding sentence shall not apply for purposes of the tax imposed by section 541 (relating to personal holding company tax), and shall not be construed to deny the credit provided by section 33 for tax withheld at source or the credit provided by section 34 for certain uses of gasoline.
Amended 1976, 1983, 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369 substituted reference to section “33” for “32” and “34” for “39”.
- 1983 Pub. L. 97-424 Pub. L. 97–424 struck out “and lubricating oil” after “gasoline”.
- 1976 Pub. L. 94-455 Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
Cases: Swallows Holding, Ltd. v. Commissioner, 515 F.3d 162 (3rd Cir. 2008); Espinosa v. Commissioner, 107 T.C. 146 (1996)
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(3) Foreign tax credit Except as provided by section 906, foreign corporations shall not be allowed the credit against the tax for taxes of foreign countries and possessions of the United States allowed by section 901.
(4) Cross reference For rule that certain foreign taxes are not to be taken into account in determining deduction or credit, see section 906(b)(1).
(d) Election to treat real property income as income connected with United States business
Amended 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
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(1) In general A foreign corporation which during the taxable year derives any income—
(A) from real property located in the United States, or from any interest in such real property, including (i) gains from the sale or exchange of real property or an interest therein, (ii) rents or royalties from mines, wells, or other natural deposits, and (iii) gains described in section 631(b) or (c), and
(B) which, but for this subsection, would not be treated as income effectively connected with the conduct of a trade or business within the United States,
may elect for such taxable year to treat all such income as income which is effectively connected with the conduct of a trade or business within the United States. In such case, such income shall be taxable as provided in subsection (a)(1) whether or not such corporation is engaged in trade or business within the United States during the taxable year. An election under this paragraph for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked with the consent of the Secretary with respect to any taxable year.
(2) Election after revocation, etc. Paragraphs (2) and (3) of section 871(d) shall apply in respect of elections under this subsection in the same manner and to the same extent as they apply in respect of elections under section 871(d).
(e) Interest on United States obligations received by banks organized in possessions In the case of a corporation created or organized in, or under the law of, a possession of the United States which is carrying on the banking business in a possession of the United States, interest on obligations of the United States which is not portfolio interest (as defined in section 881(c)(2)) shall—
Amended 1986, 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 6133(a), substituted “interest on obligations of the United States which is not portfolio interest (as defined in section 881(c)(2))” for “interest on obligations of the United States”, and struck out at end “The preceding sentence shall not apply to any Guam corporation which is treated as not being a foreign corporation by section 881(b)(1) for the taxable year.”
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1236(a), inserted “The preceding sentence shall not apply to any Guam corporation which is treated as not being a foreign corporation by section 881(b)(1) for the taxable year.”
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(1) for purposes of this subpart, be treated as income which is effectively connected with the conduct of a trade or business within the United States, and
(2) shall be taxable as provided in subsection (a)(1) whether or not such corporation is engaged in trade or business within the United States during the taxable year.
(f) Returns of tax by agent If any foreign corporation has no office or place of business in the United States but has an agent in the United States, the return required under section 6012 shall be made by the agent.