Internal Revenue Code:Sec. 904. Limitation on credit
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Location in Internal Revenue Code
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 III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
Subpart A - Foreign Tax Credit
Statute
Sec. 904. Limitation on credit
(a) Limitation
The total amount of the credit taken under section 901(a) shall
not exceed the same proportion of the tax against which such credit
is taken which the taxpayer's taxable income from sources without
the United States (but not in excess of the taxpayer's entire
taxable income) bears to his entire taxable income for the same
taxable year.
(b) Taxable income for purpose of computing limitation
(1) Personal exemptions
For purposes of subsection (a), the taxable income in the case
of an individual, estate, or trust shall be computed without any
deduction for personal exemptions under section 151 or 642(b).
(2) Capital gains
For purposes of this section -
(A) In general
Taxable income from sources outside the United States shall
include gain from the sale or exchange of capital assets only
to the extent of foreign source capital gain net income.
(B) Special rules where capital gain rate differential
In the case of any taxable year for which there is a capital
gain rate differential -
(i) in lieu of applying subparagraph (A), the taxable
income from sources outside the United States shall include
gain from the sale or exchange of capital assets only in an
amount equal to foreign source capital gain net income
reduced by the rate differential portion of foreign source
net capital gain,
(ii) the entire taxable income shall include gain from the
sale or exchange of capital assets only in an amount equal to
capital gain net income reduced by the rate differential
portion of net capital gain, and
(iii) for purposes of determining taxable income from
sources outside the United States, any net capital loss (and
any amount which is a short-term capital loss under section
1212(a)) from sources outside the United States to the extent
taken into account in determining capital gain net income for
the taxable year shall be reduced by an amount equal to the
rate differential portion of the excess of net capital gain
from sources within the United States over net capital gain.
(C) Coordination with capital gains rates
The Secretary may by regulations modify the application of
this paragraph and paragraph (3) to the extent necessary to
properly reflect any capital gain rate differential under
section 1(h) or 1201(a) and the computation of net capital
gain.
(3) Definitions
For purposes of this subsection -
(A) Foreign source capital gain net income
The term ''foreign source capital gain net income'' means the
lesser of -
(i) capital gain net income from sources without the United
States, or
(ii) capital gain net income.
(B) Foreign source net capital gain
The term ''foreign source net capital gain'' means the lesser
of -
(i) net capital gain from sources without the United
States, or
(ii) net capital gain.
(C) Section 1231 gains
The term ''gain from the sale or exchange of capital assets''
includes any gain so treated under section 1231.
(D) Capital gain rate differential
There is a capital gain rate differential for any taxable
year if -
(i) in the case of a taxpayer other than a corporation,
subsection (h) of section 1 applies to such taxable year, or
(ii) in the case of a corporation, any rate of tax imposed
by section 11, 511, or 831(a) or (b) (whichever applies)
exceeds the alternative rate of tax under section 1201(a)
(determined without regard to the last sentence of section
11(b)(1)).
(E) Rate differential portion
(i) In general
The rate differential portion of foreign source net capital
gain, net capital gain, or the excess of net capital gain
from sources within the United States over net capital gain,
as the case may be, is the same proportion of such amount as
-
(I) the excess of the highest applicable tax rate over
the alternative tax rate, bears to
(II) the highest applicable tax rate.
(ii) Highest applicable tax rate
For purposes of clause (i), the term ''highest applicable
tax rate'' means -
(I) in the case of a taxpayer other than a corporation,
the highest rate of tax set forth in subsection (a), (b),
(c), (d), or (e) of section 1 (whichever applies), or
(II) in the case of a corporation, the highest rate of
tax specified in section 11(b).
(iii) Alternative tax rate
For purposes of clause (i), the term ''alternative tax
rate'' means -
(I) in the case of a taxpayer other than a corporation,
the alternative rate of tax determined under section 1(h),
or
(II) in the case of a corporation, the alternative rate
of tax under section 1201(a).
(4) Coordination with section 936
For purposes of subsection (a), in the case of a corporation,
the taxable income shall not include any portion thereof taken
into account for purposes of the credit (if any) allowed by
section 936 (without regard to subsections (a)(4) and (i)
thereof).
(c) Carryback and carryover of excess tax paid
Any amount by which all taxes paid or accrued to foreign
countries or possessions of the United States for any taxable year
for which the taxpayer chooses to have the benefits of this subpart
exceed the limitation under subsection (a) shall be deemed taxes
paid or accrued to foreign countries or possessions of the United
States in the first preceding taxable year and in any of the first
10 succeeding taxable years, in that order and to the extent not
deemed taxes paid or accrued in a prior taxable year, in the amount
by which the limitation under subsection (a) for such preceding or
succeeding taxable year exceeds the sum of the taxes paid or
accrued to foreign countries or possessions of the United States
for such preceding or succeeding taxable year and the amount of the
taxes for any taxable year earlier than the current taxable year
which shall be deemed to have been paid or accrued in such
preceding or subsequent taxable year (whether or not the taxpayer
chooses to have the benefits of this subpart with respect to such
earlier taxable year). Such amount deemed paid or accrued in any
year may be availed of only as a tax credit and not as a deduction
and only if the taxpayer for such year chooses to have the benefits
of this subpart as to taxes paid or accrued for that year to
foreign countries or possessions of the United States.
(d) Separate application of section with respect to certain
categories of income
(1) In general.--The provisions of subsections (a), (b),
and (c) and sections 902, 907, and 960 shall be applied
separately with respect to--
(A) passive category income, and
(B) general category income.
(2) Definitions and special rules
For purposes of this subsection -
(A) Categories.--
(i) Passive category income.--The term
"passive category income" means passive income and
specified passive category income.
(ii) General category income.--The term
"general category income" means income other than
passive category income.
(B) Passive income
(i) In general
Except as otherwise provided in this subparagraph, the term
''passive income'' means any income received or accrued by
any person which is of a kind which would be foreign personal
holding company income (as defined in section 954(c)).
(ii) Certain amounts included
Except as provided in clause (iii), the term ''passive
income'' includes any amount includible in gross income under
section 551 or, except as provided in subparagraph (E)(iii)
or paragraph (3)(I), section 1293 (relating to certain
passive foreign investment companies).
(iii) Exceptions
The term ''passive income'' shall not include -
(I) any export financing interest, and
(II) any high-taxed income.
(iv) Clarification of application of section 864(d)(6)
In determining whether any income is of a kind which would
be foreign personal holding company income, the rules of
section 864(d)(6) shall apply only in the case of income of a
controlled foreign corporation.
(v) Specified passive category income.--The
term `specified passive category income' means--
(I) dividends from a DISC or
former DISC (as defined in section
992(a)) to the extent such dividends are
treated as income from sources without
the United States,
(II) taxable income attributable
to foreign trade income (within the
meaning of section 923(b)), and
(III) distributions from a FSC (or
a former FSC) out of earnings and
profits attributable to foreign trade
income (within the meaning of section
923(b)) or interest or carrying charges
(as defined in section 927(d)(1))
derived from a transaction which results
in foreign trade income (as defined in
section 923(b)).
(C) Treatment of financial services income and
companies.--
(i) In general.--Financial services income
shall be treated as general category income in the
case of--
(I) a member of a financial
services group, and
(II) any other person if such
person is predominantly engaged in the
active conduct of a banking, insurance,
financing, or similar business.
(ii) Financial services group.--The term
`financial services group' means any affiliated
group (as defined in section 1504(a) without
regard to paragraphs (2) and (3) of section
1504(b)) which is predominantly engaged in the
active conduct of a banking, insurance, financing,
or similar business. In determining whether such a
group is so engaged, there shall be taken into
account only the income of members of the group
that are--
(I) United States corporations, or
(II) controlled foreign
corporations in which such United States
corporations own, directly or
indirectly, at least 80 percent of the
total voting power and value of the
stock.
(iii) Pass-thru entities.--
The <<NOTE: Regulations.>> Secretary shall by
regulation specify for purposes of this
subparagraph the treatment of financial services
income received or accrued by partnerships and by
other pass-thru entities which are not members of
a financial services group.
(D) Financial services income
(i) In general
Except as otherwise provided in this subparagraph, the term
''financial services income'' means any income which is
received or accrued by any person predominantly engaged in
the active conduct of a banking, insurance, financing, or
similar business, and which is -
(I) described in clause (ii), or
(II) passive income (determined without regard to
subparagraph (B)(iii)(II)
(ii) General description of financial services income
Income is described in this clause if such income is -
(I) derived in the active conduct of a banking,
financing, or similar business,
(II) derived from the investment by an insurance company
of its unearned premiums or reserves ordinary and necessary
for the proper conduct of its insurance business, or
(III) of a kind which would be insurance income as
defined in section 953(a) determined without regard to
those provisions of paragraph (1)(A) of such section which
limit insurance income to income from countries other than
the country in which the corporation was created or
organized.
(E) Noncontrolled section 902 corporation
(i) In general
The term ''noncontrolled section 902 corporation'' means
any foreign corporation with respect to which the taxpayer
meets the stock ownership requirements of section 902(a) (or,
for purposes of applying paragraph (3) or (4), the requirements of
section 902(b)). A controlled foreign corporation shall not
be treated as a noncontrolled section 902 corporation with
respect to any distribution out of its earnings and profits
for periods during which it was a controlled foreign
corporation.
(ii) Treatment of inclusions under section 1293
If any foreign corporation is a non-controlled section 902
corporation with respect to the taxpayer, any inclusion under
section 1293 with respect to such corporation shall be
treated as a dividend from such corporation.
(F) High-taxed income
The term ''high-taxed income'' means any income which (but
for this subparagraph) would be passive income if the sum of -
(i) the foreign income taxes paid or accrued by the
taxpayer with respect to such income, and
(ii) the foreign income taxes deemed paid by the taxpayer
with respect to such income under section 902 or 960,
exceeds the highest rate of tax specified in section 1 or 11
(whichever applies) multiplied by the amount of such income
(determined with regard to section 78). For purposes of the
preceding sentence, the term ''foreign income taxes'' means any
income, war profits, or excess profits tax imposed by any
foreign country or possession of the United States.
(G) Export financing interest
For purposes of this paragraph, the term ''export financing
interest'' means any interest derived from financing the sale
(or other disposition) for use or consumption outside the
United States of any property -
(i) which is manufactured, produced, grown, or extracted in
the United States by the taxpayer or a related person, and
(ii) not more than 50 percent of the fair market value of
which is attributable to products imported into the United
States.
For purposes of clause (ii), the fair market value of any
property imported into the United States shall be its appraised
value, as determined by the Secretary under section 402 of the
Tariff Act of 1930 (19 U.S.C. 1401a) in connection with its
importation.
(H) Treatment of income tax base differences.--
(i) In general.--In the case of taxable
years beginning after December 31, 2006, tax
imposed under the law of a foreign country or
possession of the United States on an amount which
does not constitute income under United States tax
principles shall be treated as imposed on income
described in paragraph (1)(B).
(ii) Special rule for years before 2007.--
(I) In general.--In the case of
taxes paid or accrued in taxable years
beginning after December 31, 2004, and
before January 1, 2007, a taxpayer may
elect to treat tax imposed under the law
of a foreign country or possession of
the United States on an amount which
does not constitute income under United
States tax principles as tax imposed on
income described in subparagraph (C) or
(I) of paragraph (1).
(II) Election irrevocable.--
Any <<NOTE: Applicability.>> such
election shall apply to the taxable year
for which made and all subsequent
taxable years described in subclause (I)
unless revoked with the consent of
the Secretary.
(I) Related person
For purposes of this paragraph, the term ''related person''
has the meaning given such term by section 954(d)(3), except
that such section shall be applied by substituting ''the person
with respect to whom the determination is being made'' for
''controlled foreign corporation'' each place it appears.
(J) Transitional rule
For purposes of paragraph (1) -
(i) taxes paid or accrued in a taxable year beginning
before January 1, 1987, with respect to income which was
described in subparagraph (A) of paragraph (1) (as in effect
on the day before the date of the enactment of the Tax Reform
Act of 1986) shall be treated as taxes paid or accrued with
respect to income described in subparagraph (A) of paragraph
(1) (as in effect after such date),
(ii) taxes paid or accrued in a taxable year beginning
before January 1, 1987, with respect to income which was
described in subparagraph (E) of paragraph (1) (as in effect
on the day before the date of the enactment of the Tax Reform
Act of 1986) shall be treated as taxes paid or accrued with
respect to income described in subparagraph (I) of paragraph
(1) (as in effect after such date) except that -
(I) such taxes shall be treated as paid or accrued with
respect to shipping income to the extent the taxpayer
establishes to the satisfaction of the Secretary that such
taxes were paid or accrued with respect to such income,
(II) in the case of a person described in subparagraph
(C)(i), such taxes shall be treated as paid or accrued with
respect to financial services income to the extent the
taxpayer establishes to the satisfaction of the Secretary
that such taxes were paid or accrued with respect to such
income, and
(III) such taxes shall be treated as paid or accrued with
respect to high withholding tax interest to the extent the
taxpayer establishes to the satisfaction of the Secretary
that such taxes were paid or accrued with respect to such
income, and
(iii) taxes paid or accrued in a taxable year beginning
before January 1, 1987, with respect to income described in
any other subparagraph of paragraph (1) (as so in effect
before such date) shall be treated as taxes paid or accrued
with respect to income described in the corresponding
subparagraph of paragraph (1) (as so in effect after such
date).
(K) Transitional rules for 2007 changes.--For
purposes of paragraph (1)--
(i) taxes carried from any taxable year
beginning before January 1, 2007, to any taxable
year beginning on or after such date, with respect
to any item of income, shall be treated as
described in the subparagraph of paragraph (1) in
which such income would be described were such
taxes paid or accrued in a taxable year beginning
on or after such date, and
(ii) the Secretary may by regulations
provide for the allocation of any carryback of
taxes with respect to income from a taxable year
beginning on or after January 1, 2007, to a
taxable year beginning before such date for
purposes of allocating such income among the
separate categories in effect for the taxable year
to which carried.
(3)Look-thru in case of controlled foreign
corporations.--
(A) In general.--Except as otherwise provided in
this paragraph, dividends, interest, rents, and
royalties received or accrued by the taxpayer from a
controlled foreign corporation in which the taxpayer is
a United States shareholder shall not be treated as
passive category income.
(B) Subpart f inclusions.--Any amount included in
gross income under section 951(a)(1)(A) shall be treated
as passive category income to the extent the amount so
included is attributable to passive category income.
(C) Interest, <<NOTE: Regulations.>> rents, and
royalties.--Any interest, rent, or royalty which is
received or accrued from a controlled foreign
corporation in which the taxpayer is a United States
shareholder shall be treated as passive category income
to the extent it is properly allocable (under
regulations prescribed by the Secretary) to passive
category income of the controlled foreign corporation.
(D) Dividends.--Any dividend paid out of the
earnings and profits of any controlled foreign
corporation in which the taxpayer is a United States
shareholder shall be treated as passive category income
in proportion to the ratio of--
(i) the portion of the earnings and profits
attributable to passive category income, to
(ii) the total amount of earnings and
profits.
(E) Look-thru applies only where subpart f
applies.--If a controlled foreign corporation meets the
requirements of section 954(b)(3)(A) (relating to de
minimis rule) for any taxable year, for purposes of this
paragraph, none of its foreign base company income (as
defined in section 954(a) without regard to section
954(b)(5)) and none of its gross insurance income (as
defined in section 954(b)(3)(C)) for such taxable year
shall be treated as passive category income, except that
this sentence shall not apply to any income which
(without regard to this sentence) would be treated as
financial services income. Solely for purposes of
applying subparagraph (D), passive income of a
controlled foreign corporation shall not be treated as
passive category income if the requirements of section
954(b)(4) are met with respect to such income.
(F) Coordination with high-taxed income
provisions.--
(i) In determining whether any income of a
controlled foreign corporation is passive category
income, subclause (II) of paragraph (2)(B)(iii)
shall not apply.
(ii) Any income of the taxpayer which is
treated as passive category income under this
paragraph shall be so treated notwithstanding any
provision of paragraph (2); except that the
determination of whether any amount is high-taxed
income shall be made after the application of this
paragraph.
(G) Dividend.--For purposes of this paragraph, the
term `dividend' includes any amount included in gross
income in section 951(a)(1)(B). Any amount included in
gross income under section 78 to the extent attributable
to amounts included in gross income in section
951(a)(1)(A) shall not be treated as a dividend but
shall be treated as included in gross income under
section 951(a)(1)(A).
(H) Look-thru applies to passive foreign
investment company inclusion.--If--
(i) a passive foreign investment company is
a controlled foreign corporation, and
(ii) the taxpayer is a United States
shareholder in such controlled foreign
corporation,
any amount included in gross income under section 1293
shall be treated as income in a separate category to the
extent such amount is attributable to income in such
category.
(4) Look-thru applies to dividends from noncontrolled
section 902 corporations.--
(A) In general.--For purposes of this subsection,
any dividend from a noncontrolled section 902
corporation with respect to the taxpayer shall be
treated as income described in a subparagraph of
paragraph (1) in proportion to the ratio of--
(i) the portion of earnings and profits
attributable to income described in such
subparagraph, to
(ii) the total amount of earnings and profits.
(B) Earnings and profits of controlled foreign
corporations.--In the case of any distribution from a
controlled foreign corporation to a United States
shareholder, rules similar to the rules of subparagraph
(A) shall apply in determining the extent to which
earnings and profits of the controlled foreign
corporation which are attributable to dividends received
from a noncontrolled section 902 corporation may be
treated as income in a separate category.
(C) Special rules.--For purposes of this paragraph--
(i) Earnings and profits.--
(I) In general.--The rules of section 316 shall apply.
(II) Regulations.--The Secretary may prescribe
regulations regarding the treatment of distributions
out of earnings and profits for periods before the
taxpayer's acquisition of the stock to which the
distributions relate.
(ii) Inadequate substantiation.--If the
Secretary determines that the proper subparagraph
of paragraph (1) in which a dividend is described
has not been substantiated, such dividend shall be
treated as income described in paragraph (1)(A).
(iii) Coordination with high-taxed income
provisions.--Rules similar to the rules of
paragraph (3)(F) shall apply for purposes of this
paragraph.
(iv) Look-thru with respect to carryover of
credit.--Rules similar to subparagraph (A) also
shall apply to any carryforward under subsection
(c) from a taxable year beginning before January
1, 2003, of tax allocable to a dividend from a
noncontrolled section 902 corporation with respect
to the taxpayer. The Secretary may by regulations
provide for the allocation of any carryback of tax
allocable to a dividend from a noncontrolled
section 902 corporation from a taxable year
beginning on or after January 1, 2003, to a
taxable year beginning before such date for
purposes of allocating such dividend among the
separate categories in effect for the taxable year
to which carried.
(5) Controlled foreign corporation; United States shareholder
For purposes of this subsection--
(A) Controlled foreign corporation
The term ``controlled foreign corporation'' has the meaning
given such term by section 957 (taking into account section 953(c)).
(B) United States shareholder
The term ``United States shareholder'' has the meaning given
such term by section 951(b) (taking into account section 953(c)).
(6) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate for the purposes of this subsection,
including regulations -
(A) for the application of paragraph (3) and subsection
(f)(5) in the case of income paid (or loans made) through 1 or
more entities or between 2 or more chains of entities,
(B) preventing the manipulation of the character of income
the effect of which is to avoid the purposes of this
subsection, and
(C) providing that rules similar to the rules of paragraph
(3)(C) shall apply to interest, rents, and royalties received
or accrued from entities which would be controlled foreign
corporations if they were foreign corporations.
((e) Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(31), Nov.
5, 1990, 104 Stat. 1388-521)
(f) Recapture of overall foreign loss
(1) General rule
For purposes of this subpart and section 936, in the case of
any taxpayer who sustains an overall foreign loss for any taxable
year, that portion of the taxpayer's taxable income from sources
without the United States for each succeeding taxable year which
is equal to the lesser of -
(A) the amount of such loss (to the extent not used under
this paragraph in prior taxable years), or
(B) 50 percent (or such larger percent as the taxpayer may
choose) of the taxpayer's taxable income from sources without
the United States for such succeeding taxable year,
shall be treated as income from sources within the United States
(and not as income from sources without the United States).
(2) Overall foreign loss defined
For purposes of this subsection, the term ''overall foreign
loss'' means the amount by which the gross income for the taxable
year from sources without the United States (whether or not the
taxpayer chooses the benefits of this subpart for such taxable
year) for such year is exceeded by the sum of the deductions
properly apportioned or allocated thereto, except that there
shall not be taken into account -
(A) any net operating loss deduction allowable for such year
under section 172(a), and
(B) any -
(i) foreign expropriation loss for such year, as defined in
section 172(h) (as in effect on the day before the date of
the enactment of the Revenue Reconciliation Act of 1990), or
(ii) loss for such year which arises from fire, storm,
shipwreck, or other casualty, or from theft,
to the extent such loss is not compensated for by insurance or
otherwise.
(3) Dispositions
(A) In general
For purposes of this chapter, if property which has been used
predominantly without the United States in a trade or business
is disposed of during any taxable year -
(i) the taxpayer, notwithstanding any other provision of
this chapter (other than paragraph (1)), shall be deemed to
have received and recognized taxable income from sources
without the United States in the taxable year of the
disposition, by reason of such disposition, in an amount
equal to the lesser of the excess of the fair market value of
such property over the taxpayer's adjusted basis in such
property or the remaining amount of the overall foreign
losses which were not used under paragraph (1) for such
taxable year or any prior taxable year, and
(ii) paragraph (1) shall be applied with respect to such
income by substituting ''100 percent'' for ''50 percent''.
In determining for purposes of this subparagraph whether the
predominant use of any property has been without the United
States, there shall be taken into account use during the 3-year
period ending on the date of the disposition (or, if shorter,
the period during which the property has been used in the trade
or business).
(B) Disposition defined and special rules
(i) For purposes of this subsection, the term ''disposition''
includes a sale, exchange, distribution, or gift of property
whether or not gain or loss is recognized on the transfer.
(ii) Any taxable income recognized solely by reason of
subparagraph (A) shall have the same characterization it would
have had if the taxpayer had sold or exchanged the property.
(iii) The Secretary shall prescribe such regulations as he
may deem necessary to provide for adjustments to the basis of
property to reflect taxable income recognized solely by reason
of subparagraph (A).
(C) Exceptions
Notwithstanding subparagraph (B), the term ''disposition''
does not include -
(i) a disposition of property which is not a material
factor in the realization of income by the taxpayer, or
(ii) a disposition of property to a domestic corporation in
a distribution or transfer described in section 381(a).
(D) Application to certain dispositions of stock
in controlled foreign corporation.--
(i) In general.--This paragraph shall apply
to an applicable disposition in the same manner as
if it were a disposition of property described in
subparagraph (A), except that the exception
contained in subparagraph (C)(i) shall not apply.
(ii) Applicable disposition.--For purposes
of clause (i), the term `applicable disposition'
means any disposition of any share of stock in a
controlled foreign corporation in a transaction or
series of transactions if, immediately before such
transaction or series of transactions, the
taxpayer owned more than 50 percent (by vote or
value) of the stock of the controlled foreign
corporation. Such term shall not include a
disposition described in clause (iii) or (iv),
except that clause (i)
shall apply to any gain recognized on any such
disposition.
(iii) Exception for certain exchanges where
ownership percentage retained.--A disposition
shall not be treated as an applicable disposition
under clause (ii) if it is part of a transaction
or series of transactions--
(I) to which section 351 or 721
applies, or under which the transferor
receives stock in a foreign corporation
in exchange for the stock in the
controlled foreign corporation and the
stock received is exchanged basis
property (as defined in section
7701(a)(44)), and
(II) immediately after which, the
transferor owns (by vote or value) at
least the same percentage of stock in
the controlled foreign corporation (or,
if the controlled foreign corporation is
not in existence after such transaction
or series of transactions, in another
foreign corporation stock in which was
received by the transferor in exchange
for stock in the controlled foreign
corporation) as the percentage of stock
in the controlled foreign corporation
which the taxpayer owned immediately
before such transaction or series of
transactions.
(iv) Exception for certain asset
acquisitions.--A disposition shall not be treated
as an applicable disposition under clause (ii) if
it is part of a transaction or series of
transactions in which the taxpayer (or any member
of a controlled group of corporations filing a
consolidated return under section 1501 which
includes the taxpayer) acquires the assets of a
controlled foreign corporation in exchange for the
shares of the controlled foreign corporation in a
liquidation described in section 332 or a
reorganization described in section 368(a)(1).
(v) Controlled foreign corporation.--For
purposes of this subparagraph, the term
`controlled foreign corporation' has the meaning
given such term by section 957.
(vi) Stock ownership.--For purposes of this
subparagraph, ownership of stock shall be
determined under the rules of subsections (a) and
(b) of section 958.
(4) Accumulation distributions of foreign trust
For purposes of this chapter, in the case of amounts of income
from sources without the United States which are treated under
section 666 (without regard to subsections (b) and (c) thereof if
the taxpayer chose to take a deduction with respect to the
amounts described in such subsections under section 667(d)(1)(B))
as having been distributed by a foreign trust in a preceding
taxable year, that portion of such amounts equal to the amount of
any overall foreign loss sustained by the beneficiary in a year
prior to the taxable year of the beneficiary in which such
distribution is received from the trust shall be treated as
income from sources within the United States (and not income from
sources without the United States) to the extent that such loss
was not used under this subsection in prior taxable years, or in
the current taxable year, against other income of the
beneficiary.
(5) Treatment of separate limitation losses
(A) In general
The amount of the separate limitation losses for any taxable
year shall reduce income from sources within the United States
for such taxable year only to the extent the aggregate amount
of such losses exceeds the aggregate amount of the separate
limitation incomes for such taxable year.
(B) Allocation of losses
The separate limitation losses for any taxable year (to the
extent such losses do not exceed the separate limitation
incomes for such year) shall be allocated among (and operate to
reduce) such incomes on a proportionate basis.
(C) Recharacterization of subsequent income
If -
(i) a separate limitation loss from any income category
(hereinafter in this subparagraph referred to as ''the loss
category'') was allocated to income from any other category
under subparagraph (B), and
(ii) the loss category has income for a subsequent taxable
year,
such income (to the extent it does not exceed the aggregate
separate limitation losses from the loss category not
previously recharacterized under this subparagraph) shall be
recharacterized as income from such other category in
proportion to the prior reductions under subparagraph (B) in
such other category not previously taken into account under
this subparagraph. Nothing in the preceding sentence shall be
construed as recharacterizing any tax.
(D) Special rules for losses from sources in the United States
Any loss from sources in the United States for any taxable
year (to the extent such loss does not exceed the separate
limitation incomes from such year) shall be allocated among
(and operate to reduce) such incomes on a proportionate basis.
This subparagraph shall be applied after subparagraph (B).
(E) Definitions
For purposes of this paragraph -
(i) Income category
The term ''income category'' means each separate category
of income described in subsection (d)(1).
(ii) Separate limitation income
The term ''separate limitation income'' means, with respect
to any income category, the taxable income from sources
outside the United States, separately computed for such
category.
(iii) Separate limitation loss
The term ''separate limitation loss'' means, with respect
to any income category, the loss from such category
determined under the principles of section 907(c)(4)(B).
(F) Dispositions
If any separate limitation loss for any taxable year is
allocated against any separate limitation income for such
taxable year, except to the extent provided in regulations,
rules similar to the rules of paragraph (3) shall apply to any
disposition of property if gain from such disposition would be
in the income category with respect to which there was such
separate limitation loss.
(g) Recharacterization of Overall Domestic Loss.--
(1) General rule.--For purposes of this subpart and
section 936, in the case of any taxpayer who sustains an overall
domestic loss for any taxable year beginning after December 31,
2006, that portion of the taxpayer's taxable income from
sources within the United States for each succeeding taxable
year which is equal to the lesser of--
(A) the amount of such loss (to the extent not
used under this paragraph in prior taxable years), or
(B) 50 percent of the taxpayer's taxable income
from sources within the United States for such
succeeding taxable year,
shall be treated as income from sources without the United
States (and not as income from sources within the United
States).
(2) Overall domestic loss.--For purposes of this
subsection--
(A) In general.--The term `overall domestic loss'
means--
(i) with respect to any qualified taxable
year, the domestic loss for such taxable year to
the extent such loss offsets taxable income from
sources without the United States for the taxable
year or for any preceding qualified taxable year
by reason of a carryback, and
(ii) with respect to any other taxable year,
the domestic loss for such taxable year to the
extent such loss offsets taxable income from
sources without the United States for any
preceding qualified taxable year by reason of a
carryback.
(B) Domestic loss.--For purposes of subparagraph
(A), the term `domestic loss' means the amount by which
the gross income for the taxable year from sources
within the United States is exceeded by the sum of the
deductions properly apportioned or allocated thereto
(determined without regard to any carryback from a
subsequent taxable year).
(C) Qualified taxable year.--For purposes of
subparagraph (A), the term `qualified taxable year'
means any taxable year for which the taxpayer chose the
benefits of this subpart.
(3) Characterization of subsequent income.--
(A) In general.--Any income from sources within
the United States that is treated as income from sources
without the United States under paragraph (1) shall be
allocated among and increase the income categories in
proportion to the loss from sources within the United
States previously allocated to those income categories.
(B) Income category.--For purposes of this
paragraph, the term `income category' has the meaning
given such term by subsection (f)(5)(E)(i).
(4) Coordination <<NOTE: Regulations.>> with subsection (f).--
The Secretary shall prescribe such regulations as may be
necessary to coordinate the provisions of this subsection with
the provisions of subsection (f).
(h) Source rules in case of United States-owned foreign
corporations
(1) In general
The following amounts which are derived from a United
States-owned foreign corporation and which would be treated as
derived from sources outside the United States without regard to
this subsection shall, for purposes of this section, be treated
as derived from sources within the United States to the extent
provided in this subsection:
(A) Any amount included in gross income under -
(i) section 951(a) (relating to amounts included in gross
income of United States shareholders), or
(ii) section 1293 (relating to current taxation of income
from qualified funds).
(B) Interest.
(C) Dividends.
(2) Subpart F and passive foreign investment company inclusions
Any amount described in subparagraph (A) of paragraph (1) shall
be treated as derived from sources within the United States to
the extent such amount is attributable to income of the United
States-owned foreign corporation from sources within the United
States.
(3) Certain interest allocable to United States source income
Any interest which -
(A) is paid or accrued by a United States-owned foreign
corporation during any taxable year,
(B) is paid or accrued to a United States shareholder (as
defined in section 951(b)) or a related person (within the
meaning of section 267(b)) to such a shareholder, and
(C) is properly allocable (under regulations prescribed by
the Secretary) to income of such foreign corporation for the
taxable year from sources within the United States,
shall be treated as derived from sources within the United
States.
(4) Dividends
(A) In general
The United States source ratio of any dividend paid or
accrued by a United States-owned foreign corporation shall be
treated as derived from sources within the United States.
(B) United States source ratio
For purposes of subparagraph (A), the term ''United States
source ratio'' means, with respect to any dividend paid out of
the earnings and profits for any taxable year, a fraction -
(i) the numerator of which is the portion of the earnings
and profits for such taxable year from sources within the
United States, and
(ii) the denominator of which is the total amount of
earnings and profits for such taxable year.
(5) Exception where United States-owned foreign corporation has
small amount of United States source income
Paragraph (3) shall not apply to interest paid or accrued
during any taxable year (and paragraph (4) shall not apply to any
dividends paid out of the earnings and profits for such taxable
year) if -
(A) the United States-owned foreign corporation has earnings
and profits for such taxable year, and
(B) less than 10 percent of such earnings and profits is
attributable to sources within the United States.
For purposes of the preceding sentence, earnings and profits
shall be determined without any reduction for interest described
in paragraph (3) (determined without regard to subparagraph (C)
thereof).
(6) United States-owned foreign corporation
For purposes of this subsection, the term ''United States-owned
foreign corporation'' means any foreign corporation if 50 percent
or more of -
(A) the total combined voting power of all classes of stock
of such corporation entitled to vote, or
(B) the total value of the stock of such corporation,
is held directly (or indirectly through applying paragraphs (2)
and (3) of section 958(a) and paragraph (4) of section 318(a)) by
United States persons (as defined in section 7701(a)(30)).
(7) Dividend
For purposes of this subsection, the term ''dividend'' includes
any gain treated as ordinary income under section 1246 or as a
dividend under section 1248.
(8) Coordination with subsection (f)
This subsection shall be applied before subsection (f).
(9) Treatment of certain domestic corporations
For purposes of this subsection -
(A) in the case of interest treated as not from sources
within the United States under section 861(a)(1)(A), the
corporation paying such interest shall be treated as a United
States-owned foreign corporation, and
(B) in the case of any dividend treated as not from sources
within the United States under section 861(a)(2)(A), the
corporation paying such dividend shall be treated as a United
States-owned foreign corporation.
(10) Coordination with treaties
(A) In general
If -
(i) any amount derived from a United States-owned foreign
corporation would be treated as derived from sources within
the United States under this subsection by reason of an item
of income of such United States-owned foreign corporation,
(ii) under a treaty obligation of the United States
(applied without regard to this subsection and by treating
any amount included in gross income under section 951(a)(1)
as a dividend), such amount would be treated as arising from
sources outside the United States, and
(iii) the taxpayer chooses the benefits of this paragraph,
this subsection shall not apply to such amount to the extent
attributable to such item of income (but subsections (a), (b),
and (c) of this section and sections 902, 907, and 960 shall be
applied separately with respect to such amount to the extent so
attributable).
(B) Special rule
Amounts included in gross income under section 951(a)(1)
shall be treated as a dividend under subparagraph (A)(ii) only
if dividends paid by each corporation (the stock in which is
taken into account in determining whether the shareholder is a
United States shareholder in the United States-owned foreign
corporation), if paid to the United States shareholder, would
be treated under a treaty obligation of the United States as
arising from sources outside the United States (applied without
regard to this subsection).
(11) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate for purposes of this subsection,
including -
(A) regulations for the application of this subsection in the
case of interest or dividend payments through 1 or more
entities, and
(B) regulations providing that this subsection shall apply to
interest paid or accrued to any person (whether or not a United
States shareholder).
(i) Coordination With Nonrefundable Personal Credits.--In the case
of any taxable year of an individual to which section 26(a)(2) does not
apply, for purposes of subsection (a), the tax against which the credit
is taken is such tax reduced by the sum of the credits allowable under
subpart A of part IV of subchapter A of this chapter (other than
sections 23, 24, and 25B).
(j) Limitation on use of deconsolidation to avoid foreign tax
credit limitations
If 2 or more domestic corporations would be members of the same
affiliated group if -
(1) section 1504(b) were applied without regard to the
exceptions contained therein, and
(2) the constructive ownership rules of section 1563(e) applied
for purposes of section 1504(a),
the Secretary may by regulations provide for resourcing the income
of any of such corporations or for modifications to the
consolidated return regulations to the extent that such resourcing
or modifications are necessary to prevent the avoidance of the
provisions of this subpart.
(k) Certain individuals exempt
(1) In general
In the case of an individual to whom this subsection applies
for any taxable year -
(A) the limitation of subsection (a) shall not apply,
(B) no taxes paid or accrued by the individual during such
taxable year may be deemed paid or accrued under subsection (c)
in any other taxable year, and
(C) no taxes paid or accrued by the individual during any
other taxable year may be deemed paid or accrued under
subsection (c) in such taxable year.
(2) Individuals to whom subsection applies
This subsection shall apply to an individual for any taxable
year if -
(A) the entire amount of such individual's gross income for
the taxable year from sources without the United States
consists of qualified passive income,
(B) the amount of the creditable foreign taxes paid or
accrued by the individual during the taxable year does not
exceed $300 ($600 in the case of a joint return), and
(C) such individual elects to have this subsection apply for
the taxable year.
(3) Definitions
For purposes of this subsection -
(A) Qualified passive income
The term ''qualified passive income'' means any item of gross
income if -
(i) such item of income is passive income (as defined in
subsection (d)(2)(B) without regard to clause (iii) thereof),
and
(ii) such item of income is shown on a payee statement
furnished to the individual.
(B) Creditable foreign taxes
The term ''creditable foreign taxes'' means any taxes for
which a credit is allowable under section 901; except that such
term shall not include any tax unless such tax is shown on a
payee statement furnished to such individual.
(C) Payee statement
The term ''payee statement'' has the meaning given to such
term by section 6724(d)(2).
(D) Estates and trusts not eligible
This subsection shall not apply to any estate or trust.
(l) Cross reference
(1) For increase of limitation under subsection (a) for taxes
paid with respect to amounts received which were included in
the gross income of the taxpayer for a prior taxable year as a
United States shareholder with respect to a controlled foreign
corporation, see section 960(b).
(2) For modification of limitation under subsection (a) for
purposes of determining the amount of credit which can be taken
against the alternative minimum tax, see section 59(a).
Sources
(Aug. 16, 1954, ch. 736, 68A Stat. 287; Pub. L. 85-866, title I,
Sec. 42(a), Sept. 2, 1958, 72 Stat. 1639; Pub. L. 86-780, Sec. 1,
Sept. 14, 1960, 74 Stat. 1010; Pub. L. 87-834, Sec. 10(a),
12(b)(2), Oct. 16, 1962, 76 Stat. 1002, 1031; Pub. L. 88-272, title
II, Sec. 234(b)(6), Feb. 26, 1964, 78 Stat. 116; Pub. L. 89-809,
title I, Sec. 106(c)(1), Nov. 13, 1966, 80 Stat. 1570; Pub. L.
91-172, title V, Sec. 506(b), Dec. 30, 1969, 83 Stat. 635; Pub. L.
92-178, title V, Sec. 502(b)(2)-(4), Dec. 10, 1971, 85 Stat. 549;
Pub. L. 94-455, title V, Sec. 503(b)(1), title X, Sec. 1031(a),
1032(a), 1034(a), 1051(e), title XIX, Sec. 1901(b)(10)(B), Oct. 4,
1976, 90 Stat. 1562, 1620, 1624, 1629, 1646, 1795; Pub. L. 95-30,
title I, Sec. 102(b)(11), May 23, 1977, 91 Stat. 138; Pub. L.
95-600, title IV, Sec. 403(c)(4), 421(e)(6), title VII, Sec.
701(q)(2), (u)(2)(A)-(C), (3)(A), (4)(A), (B), (8)(C), Nov. 6,
1978, 92 Stat. 2868, 2876, 2910, 2913, 2916; Pub. L. 96-222, title
I, Sec. 104(a)(3)(D), Apr. 1, 1980, 94 Stat. 215; Pub. L. 97-248,
title II, Sec. 211(c)(2), Sept. 3, 1982, 96 Stat. 449; Pub. L.
98-21, title I, Sec. 122(c)(1), Apr. 20, 1983, 97 Stat. 87; Pub. L.
98-369, div. A, title I, Sec. 121(a), 122(a), title IV, Sec.
474(r)(21), title VIII, Sec. 801(d)(2), July 18, 1984, 98 Stat.
638, 643, 843, 995; Pub. L. 99-514, title I, Sec. 104(b)(13), title
VII, Sec. 701(e)(4)(H), title XII, Sec. 1201(a), (b), (d)(1)-(3),
1203(a), 1211(b)(3), 1235(f)(4), title XVIII, Sec. 1810(a)(1)(A),
(b)(1)-(4)(A), 1876(d)(2), 1899A(24), Oct. 22, 1986, 100 Stat.
2105, 2343, 2520, 2525, 2531, 2536, 2575, 2821, 2823, 2899, 2959;
Pub. L. 100-647, title I, Sec. 1003(b)(2), 1012(a)(1)(A), (2)-(4),
(6)-(11), (c), (p)(11), (29), (q)(12), (bb)(4)(A), title II, Sec.
2004(l), Nov. 10, 1988, 102 Stat. 3383, 3493-3497, 3517, 3521,
3525, 3534, 3606; Pub. L. 101-239, title VII, Sec. 7402(a),
7811(i)(1), Dec. 19, 1989, 103 Stat. 2357, 2409; Pub. L. 101-508,
title XI, Sec. 11101(d)(5), 11801(a)(31), Nov. 5, 1990, 104 Stat.
1388-405, 1388-521; Pub. L. 103-66, title XIII, Sec. 13227(d),
13235(a)(2), Aug. 10, 1993, 107 Stat. 494, 504; Pub. L. 104-188,
title I, Sec. 1501(b)(1), (12), 1703(i)(1), 1704(t)(36), Aug. 20,
1996, 110 Stat. 1825, 1826, 1876, 1889; Pub. L. 105-34, title III,
Sec. 311(c)(3), title XI, Sec. 1101(a), 1105(a), (b), 1111(b),
1163(b), Aug. 5, 1997, 111 Stat. 835, 963, 967, 969, 987; Pub. L.
106-170, title V, Sec. 501(b)(2), Dec. 17, 1999, 113 Stat. 1919;
Pub. L. 107-16, title II, Sec. 201(b)(2)(G), 202(f)(2)(C), title
VI, Sec. 618(b)(2)(D), June 7, 2001, 115 Stat. 46, 49, 108.)
Amendment of Section
AMENDMENT OF SECTION
2005 - P.L. 109-135, Section 403
(k) Amendment Related to Section 402 of the Act.--Paragraph (2) of
section 904(g) is amended to read as follows:
``(2) Overall domestic loss.--For purposes of this
subsection--
``(A) In general.--The term `overall domestic loss'
means--
``(i) with respect to any qualified taxable
year, the domestic loss for such taxable year to
the extent such loss offsets taxable income from
sources without the United States for the taxable
year or for any preceding qualified taxable year
by reason of a carryback, and
``(ii) with respect to any other taxable year,
the domestic loss for such taxable year to the
extent such loss offsets taxable income from
sources without the United States for any
preceding qualified taxable year by reason of a
carryback.
``(B) Domestic loss.--For purposes of subparagraph
(A), the term `domestic loss' means the amount by which
the gross income for the taxable year from sources
within the United States is exceeded by the sum of the
deductions properly apportioned or allocated thereto
(determined without regard to any carryback from a
subsequent taxable year).
``(C) Qualified taxable year.--For purposes of
subparagraph (A), the term `qualified taxable year'
means any taxable year for which the taxpayer chose the
benefits of this subpart.''.
2005 - P.L. 109-135
(G) Subsection (i) of section 904 is amended to read as
follows:
``(i) Coordination With Nonrefundable Personal Credits.--In the case
of any taxable year of an individual to which section 26(a)(2) does not
apply, for purposes of subsection (a), the tax against which the credit
is taken is such tax reduced by the sum of the credits allowable under
subpart A of part IV of subchapter A of this chapter (other than
sections 23, 24, and 25B).''.
2004 - Pub. L. 108-357 Sec. 413(c)(15). Subpara. (A) of section 904(h)(1),
as redesignated by this Act, is amended by adding ``or'' at the end
of clause (i), by striking clause (ii), and by redesignating clause (iii)
as clause (ii). The paragraph heading of paragraph (2) of section 904(h),
as so redesignated, is amended by striking ``foreign personal
holding or''.
2004 - Subsec.404,Pub.L.108-357; Effective Date:
(1) In general.--The amendments made by this section (Sec.404)
shall apply to taxable years beginning after December 31, 2006.
(2) Transitional rule relating to income tax base
difference.--Section 904(d)(2)(H)(ii) of the Internal Revenue
Code of 1986, as added by subsection (e), shall apply to
taxable years beginning after December 31, 2004.
2004 - Subsec.404(f)(4),Pub.L.108-357, amended Sec.904(d)(3)
by amending the entire paragraph (3).
2004 - Subsec.404(f)(1),Pub.L.108-357, amended Sec.904(d)(2)
(B)by striking subclause (I) and redesignating (II) and (III)
as (I) and (II).
2004 - Subsec.404(e),Pub.L.108-357, amended Sec.904(d)(2)
is amended by redesignating subparagraphs (H) and (I) as
subparagraphs (I) and (J), respectively, and by inserting after
subparagraph (G) the following new subparagraph:
``(H) Treatment of income tax base differences.--
``(i) In general.--In the case of taxable
years beginning after December 31, 2006, tax
imposed under the law of a foreign country or
possession of the United States on an amount which
does not constitute income under United States tax
principles shall be treated as imposed on income
described in paragraph (1)(B).
``(ii) Special rule for years before 2007.--
``(I) In general.--In the case of
taxes paid or accrued in taxable years
beginning after December 31, 2004, and
before January 1, 2007, a taxpayer may
elect to treat tax imposed under the law
of a foreign country or possession of
the United States on an amount which
does not constitute income under United
States tax principles as tax imposed on
income described in subparagraph (C) or
(I) of paragraph (1).
``(II) Election irrevocable.--
Any <<NOTE: Applicability.>> such
election shall apply to the taxable year
for which made and all subsequent
taxable years described in subclause (I)
unless revoked with the consent of the
Secretary.''.
2004 - Subsec.404(d),Pub.L.108-357, amended Sec.904(d)(2)
, as amended by section 403(b)(3), is amended by striking
subparagraph (D), by redesignating subparagraph (C) as
subparagraph (D), and by inserting before subparagraph (D)
(as so redesignated) the following new subparagraph:
``(C) Treatment of financial services income and
companies.--
``(i) In general.--Financial services income
shall be treated as general category income in the
case of--
``(I) a member of a financial
services group, and
``(II) any other person if such
person is predominantly engaged in the
active conduct of a banking, insurance,
financing, or similar business.
``(ii) Financial services group.--The term
`financial services group' means any affiliated
group (as defined in section 1504(a) without
regard to paragraphs (2) and (3) of section
1504(b)) which is predominantly engaged in the
active conduct of a banking, insurance, financing,
or similar business. In determining whether such a
group is so engaged, there shall be taken into
account only the income of members of the group
that are--
``(I) United States corporations, or
``(II) controlled foreign
corporations in which such United States
corporations own, directly or
indirectly, at least 80 percent of the
total voting power and value of the
stock.
``(iii) Pass-thru entities.--
The <<NOTE: Regulations.>> Secretary shall by
regulation specify for purposes of this
subparagraph the treatment of financial services
income received or accrued by partnerships and by
other pass-thru entities which are not members of
a financial services group.''.
2004 - Subsec.404(c),Pub.L.108-357, amended Sec.904(d)(2)(B)
by adding at the end the following new clause:
``(v) Specified passive category income.--The
term `specified passive category income' means--
``(I) dividends from a DISC or
former DISC (as defined in section
992(a)) to the extent such dividends are
treated as income from sources without
the United States,
``(II) taxable income attributable
to foreign trade income (within the
meaning of section 923(b)), and
``(III) distributions from a FSC (or
a former FSC) out of earnings and
profits attributable to foreign trade
income (within the meaning of section
923(b)) or interest or carrying charges
(as defined in section 927(d)(1))
derived from a transaction which results
in foreign trade income (as defined in
section 923(b)).''.
2004 - Subsec.404(b),Pub.L.108-357, amended Sec.(d)(2)
is amended by striking subparagraph (B), by
redesignating subparagraph (A) as subparagraph (B),
and by inserting before subparagraph (B) (as so
redesignated) the following new subparagraph:
``(A) Categories.--
``(i) Passive category income.--The term
`passive category income' means passive income and
specified passive category income.
``(ii) General category income.--The term
`general category income' means income other than
passive category income.''.
2004 - Subsec.404(a),Pub.L.108-357, amended Sec.904(d)(1)
as follows: ``(1) In general.--The provisions
of subsections (a), (b), and (c) and sections 902,
907, and 960 shall be applied separately with
respect to--
``(A) passive category income, and
``(B) general category income.''.
2004 - Subsec.404(f)(5),Pub.L.108-357, amended Sec.904(d)(2)
by adding a new subparagraph "(K)- Transitional Rules for
2007 changes.--For purposes of paragraph (1)".
2004 - Pub. L. 108-357, Sec. 404(f)(3), amended Sec.904(d)
(2)(D)is amended by striking clause (iii).
2004 - Pub. L. 108-357, Sec. 404(f)(2), amended Sec.904(d)
(2)(D)(i)is amended by adding ``or'' at the end of
subclause (I) and by striking subclauses
(II) and (III) and inserting the following new subclause:
``(II) passive income (determined without regard
to subparagraph (B)(iii)(II)).''.
2004 - Pub. L. 108-357, Sec. 402(a). Section 904 is amended by
redesignating subsections (g), (h), (i), (j), and (k) as subsections (h),
(i), (j), (k), and (l) respectively, and by inserting after subsection (f)
the following new subsection (g).
2002 - Pub. L. 107-147, Sec. 601(b)(1), amended Sec 904(h)by
substituting 2000, 2001, 2002, and 2003 for 2000 and 2001.
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
Pub. L. 105-34, title XI, Sec. 1105, Aug. 5, 1997, 111 Stat.
967, provided that, applicable to taxable years beginning after
Dec. 31, 2002, subsection (d) of this section is amended -
(1) by amending paragraph (1)(E) to read as follows:
''(E) in the case of a corporation, dividends from noncontrolled
section 902 corporations out of earnings and profits accumulated in
taxable years beginning before January 1, 2003,'';
(2) in paragraph (2)(C)(iii)(II) and (D) by inserting ''out of
earnings and profits accumulated in taxable years beginning
before January 1, 2003'' after ''corporation'';
(3) in paragraph (2)(E) by adding at the end the following new
clause:
''(iv) All non-PFICs treated as one
''All noncontrolled section 902 corporations which are not
passive foreign investment companies (as defined in section 1297)
shall be treated as one noncontrolled section 902 corporation for
purposes of paragraph (1).''; and
(4) by redesignating paragraphs (4) and (5) as paragraphs (5)
and (6), respectively, and by adding after paragraph (3) the
following new paragraph:
(4) Look-thru applies to dividends from noncontrolled section 902
corporations
(A) In general
For purposes of this subsection, any applicable dividend shall
be treated as income in a separate category in proportion to the
ratio of -
(i) the portion of the earnings and profits described in
subparagraph (B)(ii) attributable to income in such category,
to
(ii) the total amount of such earnings and profits.
(B) Applicable dividend
For purposes of subparagraph (A), the term ''applicable
dividend'' means any dividend -
(i) from a noncontrolled section 902 corporation with respect
to the taxpayer, and
(ii) paid out of earnings and profits accumulated in taxable
years beginning after December 31, 2002.
(C) Special rules
(i) In general
Rules similar to the rules of paragraph (3)(F) shall apply
for purposes of this paragraph.
(ii) Earnings and profits
For purposes of this paragraph and paragraph (1)(E) -
(I) In general
The rules of section 316 shall apply.
(II) Regulations
The Secretary may prescribe regulations regarding the
treatment of distributions out of earnings and profits for
periods prior to the taxpayer's acquisition of such stock.
References in Text
REFERENCES IN TEXT
Sections 923 and 927, referred to in subsec. (d)(1)(G), (H), were
repealed by Pub. L. 106-519, Sec. 2, Nov. 15, 2000, 114 Stat. 2423.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (d)(2)(I), is the date of the enactment of Pub. L.
99-514, which was approved Oct. 22, 1986.
Section 172(h), referred to in subsec. (f)(2)(B)(i), was repealed
by Pub. L. 101-508, title XI, Sec. 11811(b)(1), Nov. 5, 1990, 104
Stat. 1388-532.
The date of the enactment of the Revenue Reconciliation Act of
1990, referred to in subsec. (f)(2)(B)(i), is the date of enactment
of Pub. L. 101-508, title XI, which was approved Nov. 5, 1990.
Miscellaneous
AMENDMENTS
2004 - Subsec.895(a),Pub.L.108-357, Sec.904(f)(3), was amended
to add a new subparagraph (D)"Application to certain dispositions
of stock in controlled foreign corporation.--".
2004 - Pub. L. 108-357 Sec. 417(a). Section 904(c) (relating
to carryback and carryover of excess tax paid) is amended--
by striking ``in the second preceding taxable year,'', and
by striking ``, and in the first, second, third, fourth,
or fifth'' and inserting ``and in any of the first 10''
Effective <<NOTE: 26 USC 904 note.>> Date.--
(1) Carryback.--The amendments made by subsections (a)(1)
and (b)(1) shall apply to excess foreign taxes arising in
Taxable years beginning after the date of the enactment of this Act.
(2) Carryover.--The amendments made by subsections (a)(2)
and (b)(2) shall apply to excess foreign taxes which (without
regard to the amendments made by this section) may be carried to
any taxable year ending after the date of the enactment of this Act.
Effective <<NOTE: 26 USC 904 note.>> Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
(2) Transitional rule relating to income tax base
difference.--Section 904(d)(2)(H)(ii) of the Internal Revenue
Code of 1986, as added by subsection (e), shall apply to taxable
years beginning after December 31, 2004.
2004 - Pub. L. 108-357, Sec. 402 & 403. Section 904 is amended by
redesignating subsections (g), (h), (i), (j), and (k) as
subsections (h), (i), (j), (k), and (l) respectively, and by inserting
after subsection (f) the following new subsection:
"(g) Recharacterization of Overall Domestic Loss";
Section 904(d)(4) (relating to look-thru rules apply to dividends
from noncontrolled section 902 corporations) is amended with new
paragraph (4);
Conforming Amendments.--
(1) Subparagraph (E) of section 904(d)(1) is hereby repealed.
(2) Section 904(d)(2)(C)(iii) is amended by adding ``and''
at the end of subclause (I), by striking subclause (II), and by
redesignating subclause (III) as subclause (II).
(3) The last sentence of section 904(d)(2)(D) is amended to
read as follows: ``Such term does not include any financial
services income.''.
(4) Section 904(d)(2)(E) is amended by inserting ``or (4)'' after
``paragraph (3)'' in clause (i), and by striking clauses (ii) and
(iv) and by redesignating clause (iii) as clause (ii).
(5) Section 904(d)(3)(F) is amended by striking ``(D), or (E)'' and
inserting ``or (D)''.
2004 - Subsec.312(b)(1),Pub.L.108-311, amended Sec.904(h)
by adding 2004 and 2005.
2001 - Subsec. (h). Pub. L. 107-16, Sec. 618(b)(2)(D), 901,
temporarily substituted '', 24, and 25B'' for ''and 24''. See
Effective and Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Sec. 202(f)(2)(C), 901, temporarily substituted
''sections 23 and 24'' for ''section 24''. See Effective and
Termination Dates of 2001 Amendment note below.
Pub. L. 107-16, Sec. 201(b)(2)(G), 901, inserted ''(other than
section 24)'' after ''chapter''. See Effective and Termination
Dates of 2001 Amendment note below.
1999 - Subsec. (h). Pub. L. 106-170 inserted at end ''This
subsection shall not apply to taxable years beginning during 2000
or 2001.''
1997 - Subsec. (b)(2)(C). Pub. L. 105-34, Sec. 311(c)(3), added
subpar. (C).
Subsec. (d)(2)(C)(i)(II). Pub. L. 105-34, Sec. 1163(b),
substituted ''subclauses (I) and (III)'' for ''subclause (I)''.
Subsec. (d)(2)(E)(i). Pub. L. 105-34, Sec. 1111(b), struck out
''and except as provided in regulations, the taxpayer was a United
States shareholder in such corporation'' after ''was a controlled
foreign corporation''.
Subsecs. (j), (k). Pub. L. 105-34, Sec. 1101(a), added subsec.
(j) and redesignated former subsec. (j) as (k).
1996 - Subsec. (d)(3)(G). Pub. L. 104-188, Sec. 1501(b)(1), (12),
amended subpar. (G) identically, substituting ''section
951(a)(1)(B)'' for ''subparagraph (B) or (C) of section
951(a)(1)''.
Pub. L. 104-188, Sec. 1703(i)(1), substituted ''subparagraph (B)
or (C) of section 951(a)(1)'' for ''section 951(a)(1)(B)''.
Subsec. (f)(2)(B)(i). Pub. L. 104-188, Sec. 1704(t)(36), inserted
''(as in effect on the day before the date of the enactment of the
Revenue Reconciliation Act of 1990)'' after ''section 172(h)''.
1993 - Subsec. (b)(4). Pub. L. 103-66, Sec. 13227(d), inserted
before period at end ''(without regard to subsections (a)(4) and
(i) thereof)''.
Subsec. (d)(2)(A)(iii)(II) to (IV). Pub. L. 103-66, Sec.
13235(a)(2), inserted ''and'' at end of subcl. II, substituted
''income.'' for ''income, and'' in subcl. III, and struck out
subcl. (IV) which read as follows: ''any foreign oil and gas
extraction income (as defined in section 907(c)).''
1990 - Subsec. (b)(3)(D)(i). Pub. L. 101-508, Sec.
11101(d)(5)(A), substituted ''subsection (h)'' for ''subsection
(j)''.
Subsec. (b)(3)(E)(iii)(I). Pub. L. 101-508, Sec. 11101(d)(5)(B),
substituted ''section 1(h)'' for ''section 1(j)''.
Subsec. (e). Pub. L. 101-508, Sec. 11801(a)(31), struck out
subsec. (e) which related to transitional rules for carrybacks and
carryovers for taxpayers on the per-country limitation.
1989 - Subsec. (d)(1)(H). Pub. L. 101-239, Sec. 7811(i)(1),
substituted ''interest or carrying charges (as defined in section
927(d)(1)) derived from a transaction which results in foreign
trade income (as defined in section 923(b))'' for ''qualified
interest and carrying charges (as defined in section 245(c))''.
Subsecs. (i), (j). Pub. L. 101-239, Sec. 7402(a), added subsec.
(i) and redesignated former subsec. (i) as (j).
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 1003(b)(2)(A),
amended par. (2) generally, substituting general provisions and
provisions setting special rules where there is a capital gain rate
differential for provisions for corporations and for other
taxpayers.
Subsec. (b)(3)(D). Pub. L. 100-647, Sec. 1003(b)(2)(B), added
subpar. (D) and struck out former subpar. (D), Rate differential
portion, which read as follows: ''The 'rate differential portion'
of foreign source net capital gain, net capital gain, or the excess
of net capital gain from sources within the United States over net
capital gain, as the case may be, is the same proportion of such
amount as the excess of the highest rate of tax specified in
section 11(b) over the alternative rate of tax under section
1201(a) bears to the highest rate of tax specified in section
11(b).''
Subsec. (b)(3)(D)(ii). Pub. L. 100-647, Sec. 2004(l), substituted
''section 11(b)(1)'' for ''section 11(b)''.
Subsec. (b)(3)(E). Pub. L. 100-647, Sec. 1003(b)(2)(B), added
subpar. (E).
Subsec. (d)(1)(E). Pub. L. 100-647, Sec. 1012(a)(11), inserted
''in the case of a corporation,'' before ''dividends''.
Subsec. (d)(2)(A)(ii). Pub. L. 100-647, Sec. 1012(a)(6)(A),
(p)(29)(A), substituted ''Except as provided in clause (iii), the
term'' for ''The term'' and ''or, except as provided in
subparagraph (E)(iii) or paragraph (3)(I), section 1293'' for ''or
section 1293''.
Subsec. (d)(2)(A)(iv). Pub. L. 100-647, Sec. 1012(a)(6)(B), added
cl. (iv).
Subsec. (d)(2)(B)(iii). Pub. L. 100-647, Sec. 1012(a)(8), amended
cl. (iii) generally. Prior to amendment, cl. (iii) read as
follows: ''The Secretary may by regulations provide that amounts
(not otherwise high withholding tax interest) shall be treated as
high withholding tax interest where necessary to prevent avoidance
of the purposes of this subparagraph.''
Subsec. (d)(2(C). Pub. L. 100-647, Sec. 1012(a)(1)(A), amended
subpar. (C) generally, revising and restating as cls. (i) to (iii)
provisions of former cls. (i) to (iv).
Subsec. (d)(2)(D). Pub. L. 100-647, Sec. 1012(a)(2), provided for
exclusion from term ''shipping income'' any dividend from a
noncontrolled section 902 corporation and any financial services
income.
Subsec. (d)(2)(E)(i). Pub. L. 100-647, Sec. 1012(a)(10), inserted
''and except as provided in regulations, the taxpayer was a United
States shareholder in such corporation'' before period at end.
Subsec. (d)(2)(E)(iii). Pub. L. 100-647, Sec. 1012(p)(29)(B),
added cl. (iii).
Subsec. (d)(2)(I)(ii). Pub. L. 100-647, Sec. 1012(a)(9),
substituted ''except that - '' for ''except to the extent that -
'', added subcls. (I) to (III), and struck out former subcls. (I)
and (II) which read as follows:
''(I) the taxpayer establishes to the satisfaction of the
Secretary that such taxes were paid or accrued with respect to
shipping income, or
''(II) in the case of an entity meeting the requirements of
subparagraph (C)(ii), the taxpayer establishes to the satisfaction
of the Secretary that such taxes were paid or accrued with respect
to financial services income, and''.
Subsec. (d)(3)(E). Pub. L. 100-647, Sec. 1012(a)(4), inserted
first sentence, struck out former first sentence which read ''If a
controlled foreign corporation meets the requirements of section
954(b)(3)(A) (relating to de minimis rule) for any taxable year,
for purposes of this paragraph, none of its income for such taxable
year shall be treated as income in a separate category.'', and in
second sentence substituted ''passive income'' for ''income (other
than high withholding tax interest and dividends from a
noncontrolled section 902 corporation)''.
Subsec. (d)(3)(F). Pub. L. 100-647, Sec. 1012(a)(7), amended
subpar. (F) generally. Prior to amendment, subpar. (F) read as
follows: ''For purposes of this paragraph, the term 'separate
category' means any category of income described in subparagraph
(A), (B), (C), (D), or (E) of paragraph (1).''
Subsec. (d)(3)(H). Pub. L. 100-647, Sec. 1012(a)(3), added
subpar. (H).
Subsec. (d)(3)(I). Pub. L. 100-647, Sec. 1012(p)(11), added
subpar. (I).
Subsec. (f)(5)(F). Pub. L. 100-647, Sec. 1012(c), added subpar.
(F).
Subsec. (g)(9)(A). Pub. L. 100-647, Sec. 1012(q)(12), substituted
''861(a)(1)(A)'' for ''861(a)(1)(B)''.
Subsec. (g)(10), (11). Pub. L. 100-647, Sec. 1012(bb)(4)(A),
added par. (10) and redesignated former par. (10) as (11).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 104(b)(13), struck out
last sentence ''For purposes of the preceding sentence, in the case
of an individual the entire taxable income shall be reduced by an
amount equal to the zero bracket amount.''
Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 1211(b)(3), redesignated
subpar. (E) as (C) and struck out former subpar. (C), exception for
gain from the sale of certain personal property, which read as
follows: ''There shall be included as gain from sources within the
United States any gain from sources without the United States from
the sale or exchange of a capital asset which is personal property
which -
''(i) in the case of an individual, is sold or exchanged
outside of the country (or possession) of the individual's
residence,
''(ii) in the case of a corporation, is stock in a second
corporation sold or exchanged other than in a country (or
possession) in which such second corporation derived more than 50
percent of its gross income for the 3-year period ending with the
close of such second corporation's taxable year immediately
preceding the year during which the sale or exchange occurred, or
''(iii) in the case of any taxpayer, is personal property
(other than stock in a corporation) sold or exchanged other than
in a country (or possession) in which such property is used in a
trade or business of the taxpayer or in which such taxpayer
derived more than 50 percent of its gross income for the 3-year
period ending with the close of its taxable year immediately
preceding the year during which the sale or exchange occurred,
unless such gain is subject to an income, war profits, or excess
profits tax of a foreign country or possession of the United
States, and the rate of tax applicable to such gain is 10 percent
or more of the gain from the sale or exchange (computed under this
chapter).''
Subsec. (b)(3)(D). Pub. L. 99-514, Sec. 1211(b)(3), redesignated
subpar. (F) as (D) and struck out former subpar. (D), gain from
liquidation of certain foreign corporations, which read as follows:
''Subparagraph (C) shall not apply with respect to a distribution
in liquidation of a foreign corporation to which part II of
subchapter C applies if such corporation derived less than 50
percent of its gross income from sources within the United States
for the 3-year period ending with the close of such corporation's
taxable year immediately preceding the year during which the
distribution occurred.''
Subsec. (b)(3)(E), (F). Pub. L. 99-514, Sec. 1211(b)(3),
redesignated former subpars. (E) and (F) as (C) and (D),
respectively.
Subsec. (d). Pub. L. 99-514, Sec. 1201(d)(1), substituted
''certain categories of income'' for ''certain interest income and
income from DISC, former DISC, FSC, or former FSC'' in heading.
Subsec. (d)(1). Pub. L. 99-514, Sec. 1201(a), (d)(2), (3),
inserted ''and sections 902, 907, and 960'' in introductory
provisions, added subpars. (A) to (E), struck out former subpar.
(A) which read ''the interest income described in paragraph (2)'',
redesignated former subpars. (B), (C), (D), and (E) as (F), (G),
(H), and (I), respectively, and in subpar. (I), substituted ''in
any of the preceding subparagraphs'' for ''in subparagraph (A),
(B), (C), or (D)''.
Pub. L. 99-514, Sec. 1899A(24), made technical correction
clarifying heading. See 1984 Amendment note below.
Subsec. (d)(1)(D). Pub. L. 99-514, Sec. 1876(d)(2), amended
subpar. (D) generally. Prior to amendment, subpar. (D) read as
follows: ''distributions from a FSC (or former FSC) out of earnings
and profits attributable to foreign trade income (within the
meaning of section 923(b)), and''.
Subsec. (d)(2). Pub. L. 99-514, Sec. 1201(b), added par. (2) and
struck out former par. (2), interest income to which applicable,
which read as follows: ''For purposes of this subsection, the
interest income described in this paragraph is interest other than
interest -
''(A) derived from any transaction which is directly related to
the active conduct by the taxpayer of a trade or business in a
foreign country or a possession of the United States,
''(B) derived in the conduct by the taxpayer of a banking,
financing, or similar business,
''(C) received from a corporation in which the taxpayer (or one
or more includible corporations in an affiliated group, as
defined in section 1504, of which the taxpayer is a member) owns,
directly or indirectly, at least 10 percent of the voting stock,
or
''(D) received on obligations acquired as a result of the
disposition of a trade or business actively conducted by the
taxpayer in a foreign country or possession of the United States
or as a result of the disposition of stock or obligations of a
corporation in which the taxpayer owned at least 10 percent of
the voting stock.
For purposes of subparagraph (C), stock owned, directly or
indirectly, by or for a foreign corporation, shall be considered as
being proportionately owned by its shareholders. For purposes of
this subsection, interest (after the operation of section
904(d)(3)) received from a designated payor corporation described
in section 904(d)(3)(E)(iii) by a taxpayer which owns directly or
indirectly less than 10 percent of the voting stock of such
designated payor corporation shall be treated as interest described
in subparagraph (A) to the extent such interest would have been so
treated had such taxpayer received it from other than a designated
payor corporation.''
Pub. L. 99-514, Sec. 1810(b)(3), inserted at end ''For purposes
of this subsection, interest (after the operation of section
904(d)(3)) received from a designated payor corporation described
in section 904(d)(3)(E)(iii) by a taxpayer which owns directly or
indirectly less than 10 percent of the voting stock of such
designated payor corporation shall be treated as interest described
in subparagraph (A) to the extent such interest would have been so
treated had such taxpayer received it from other than a designated
payor corporation.''
Subsec. (d)(3). Pub. L. 99-514, Sec. 1201(b), added par. (3) and
struck out former par. (3) treating as interest certain amounts
attributable to United States-owned foreign corporations, etc.,
subpars. thereof relating to following subject matter: (A) general
provisions, (B) separate limitation interest, (C) exception where
designated corporation has small amount of separate limitation
interest, (D) treatment of certain interest, (E) designated payor
corporation, (F) determination of year to which amount is
attributable, (G) ordering rules, (H) dividend, (I) interest and
dividends from members of same affiliated group, and (J)
distributions through other entities.
Subsec. (d)(3)(C). Pub. L. 99-514, Sec. 1810(b)(1), inserted at
end ''The preceding sentence shall not apply to any amount
includible in gross income under section 551 or 951.''
Subsec. (d)(3)(E). Pub. L. 99-514, Sec. 1810(b)(4)(A), inserted
at end:
''(iv) any other corporation formed or availed of for purposes
of avoiding the provisions of this paragraph.
For purposes of this paragraph, the rules of paragraph (9) of
subsection (g) shall apply.''
Subsec. (d)(3)(I). Pub. L. 99-514, Sec. 1810(b)(2), redesignated
subpar. (I) as (J) and added a new subpar. (I), interest and
dividends from members of same affiliated group, which read as
follows: ''For purposes of this paragraph, dividends and interest
received or accrued by the designated payor corporation from
another member of the same affiliated group (determined under
section 1504 without regard to subsection (b)(3) thereof) shall be
treated as separate limitation interest if (and only if) such
amounts are attributable (directly or indirectly) to separate
limitation interest of any other member of such group.''
Subsec. (d)(3)(J). Pub. L. 99-514, Sec. 1810(b)(2), redesignated
subpar. (I) as (J) and struck out former subpar. (J), interest from
members of same affiliated group, which read as follows: ''For
purposes of this paragraph, interest received or accrued by the
designated payor corporation from another member of the same
affiliated group (determined under section 1504 without regard to
subsection (b)(3) thereof) shall not be treated as separate
limitation interest, unless such interest is attributable directly
or indirectly to separate limitation interest of such other
member.''
Subsec. (d)(4), (5). Pub. L. 99-514, Sec. 1201(b), added pars.
(4) and (5).
Subsec. (f)(5). Pub. L. 99-514, Sec. 1203(a), added par. (5).
Subsec. (g)(1)(A)(iii). Pub. L. 99-514, Sec. 1235(f)(4)(A), added
cl. (iii).
Subsec. (g)(2). Pub. L. 99-514, Sec. 1235(f)(4)(B), substituted
''holding or passive foreign investment company'' for ''holding
company'' in heading.
Subsec. (g)(9), (10). Pub. L. 99-514, Sec. 1810(a)(1)(A), added
par. (9) and redesignated former par. (9) as (10).
Subsec. (i)(2). Pub. L. 99-514, Sec. 701(e)(4)(H), struck out
''by an individual'' after ''can be taken'' and substituted
''section 59(a)'' for ''section 55(c)''.
1984 - Subsec. (d). Pub. L. 98-369, Sec. 801(d)(2)(C), which
directed amendment of par. (1) heading by substituting ''Separate
application of section with respect to certain interest income and
income from DISC, former DISC, FSC, or former FSC'' for
''Application of section in case of certain interest income and
dividends from a DISC or former DISC'' was executed to subsec. (d)
heading to reflect the probable intent of Congress.
Subsec. (d)(1)(B) to (E). Pub. L. 98-369, Sec. 801(d)(2)(A), (B),
struck out ''and'' after ''United States,'' at end of subpar. (B),
substituted ''taxable income attributable to foreign trade income
(within the meaning of section 923(b)),'' for ''income other than
the interest income described in paragraph (2) and dividends
described in subparagraph (B),'' in subpar. (C), and added subpars.
(D) and (E).
Subsec. (d)(3). Pub. L. 98-369, Sec. 122(a), added par. (3).
Subsec. (g). Pub. L. 98-369, Sec. 121(a), added subsec. (g).
Former subsec. (g) redesignated (h).
Pub. L. 98-369, Sec. 474(r)(21), amended subsec. (g) generally,
substituting ''Coordination with nonrefundable personal credits''
for ''Coordination with credit for the elderly'' in heading and in
text substituting ''reduced by the sum of the credits allowable
under subpart A of part IV of subchapter A of this chapter'' for
''reduced by the amount of the credit (if any) for the taxable year
allowable under section 37 (relating to credit for the elderly and
the permanently and totally disabled)''.
Subsecs. (h), (i). Pub. L. 98-369, Sec. 121(a), redesignated
former subsecs. (g) and (h) as (h) and (i), respectively.
1983 - Subsec. (g). Pub. L. 98-21 substituted ''relating to
credit for the elderly and the permanently and totally disabled''
for ''relating to credit for the elderly''.
1982 - Subsec. (f)(4) to (6). Pub. L. 97-248 struck out par. (4)
which provided for the determination of foreign oil related loss
where section 907 was applicable, redesignated par. (5) as (4), and
purported to redesignate par. (6) as (5). However, subsec. (f) did
not contain a par. (6).
1980 - Subsec. (b)(3)(F). Pub. L. 96-222, Sec. 104(a)(3)(D)(i),
redesignated subpar. (E) ''Rate differential portion'', added by
Pub. L. 95-600, as (F).
1978 - Subsec. (b)(2). Pub. L. 95-600, Sec. 403(c)(4)(A),
701(u)(2)(A), (3)(A), in subpar. (A) substituted ''this section''
for ''subsection (a)'', ''the rate differential portion'' for
''three eighths'' wherever appearing, and ''for purposes of
determining taxable income from sources without the United States,
any net capital loss (and any amount which is a short term capital
loss under section 1212(a))'' for ''any net capital loss''.
Subsec. (b)(3). Pub. L. 95-600, Sec. 403(c)(4)(B), 701(u)(2)(B),
(C), as amended by Pub. L. 96-222, Sec. 104(a)(3)(D)(ii),
substituted ''There'' for ''For purposes of this paragraph,
there'', added subpar. (D), redesignated former subpar. (D),
relating to section 1231 gains, as subpar. (E), and added another
subpar. (E), relating to rate differential portion. See 1980
Amendment note above.
Subsec. (f)(2)(A). Pub. L. 95-600, Sec. 701(u)(4)(A), struck out
provision relating to capital loss carrybacks and carryovers.
Subsec. (f)(4). Pub. L. 95-600, Sec. 701(u)(4)(B), (8)(C),
substituted in introductory provisions ''In making the separate
computation under this subsection with respect to foreign oil
related income which is required by section 907(b)'' for ''In the
case of a corporation to which section 907(b)(1) applies'' and in
subpar. (A) struck out provision relating to capital loss
carrybacks and carryovers.
Subsec. (f)(5). Pub. L. 95-600, Sec. 701(q)(2), added par. (5).
Subsec. (h). Pub. L. 95-600, Sec. 421(e)(6), designated existing
provisions as par. (1) and added par. (2).
1977 - Subsec. (a). Pub. L. 95-30 provided that, for purposes of
determining the maximum total amount of the credit taken under
section 901(a), in the case of an individual, the entire taxable
income shall be reduced by an amount equal to the zero bracket
amount.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1031(a), struck out
provisions allowing the per-country limitation, made the overall
limitation applicable to all taxpayers to determine their foreign
tax credit limitation, and inserted reference to section 901(a).
Subsec. (b). Pub. L. 94-455, Sec. 1031(a), 1034(a), 1051(e),
redesignated subsec. (c) as (b)(1), inserted provisions that the
net United States capital losses would offset net foreign capital
gains and, in the case of corporations, that only 30/48 of the net
foreign source gain would be included in the foreign tax credit
limitation, and that the gain from the sale or exchange of personal
property outside the United States would be considered United
States source income unless one of three exceptions applied, and
added par. (4).
Subsec. (c). Pub. L. 94-455, Sec. 1031(a), redesignated subsec.
(d) as (c), and amended the redesignated subsec. (c) generally to
conform to the elimination of the per-country limitation in subsec.
(a). Former subsec. (c) redesignated (b)(1).
Subsec. (d). Pub. L. 94-455, Sec. 1031(a), redesignated subsec.
(f)(1), (2), as (d). Former subsec. (d) redesignated (c).
Subsec. (e). Pub. L. 94-455, Sec. 1031(a), added subsec. (e).
Former subsec. (e) was eliminated in view of the amendment of
subsec. (a).
Subsec. (f). Pub. L. 94-455, Sec. 1031(a), 1032(a),
1901(b)(10)(B), added subsec. (f), and substituted ''section
172(h)'' for ''section 172(k)(1)'' in pars. (2)(B)(i) and
(4)(B)(i). Former subsec. (f)(1), (2), was redesignated (d). Former
subsecs. (f)(3), (4), (5) were omitted.
Subsec. (g). Pub. L. 94-455, Sec. 1032(a), 503(b)(1), added
subsec. (g). Former subsec. (f) redesignated (g), and further
redesignated (h).
Subsec. (h). Pub. L. 94-455, Sec. 503(b)(1), redesignated former
subsec. (g) as (h).
1971 - Subsec. (f). Pub. L. 92-178, Sec. 502(b)(2), inserted
''and dividends from a DISC or former DISC'' after ''interest
income'' in the heading.
Subsec. (f)(1). Pub. L. 92-178, Sec. 502(b)(2), inserted ''each
of the following items of income'' in introductory text, added
subpar. (B), and redesignated former subpar. (B) as (C), inserting
therein provisions respecting dividends described in subparagraph
(B).
Subsec. (f)(3). Pub. L. 92-178, Sec. 502(b)(3), provided that the
limitation provided by subsec. (a)(2) shall not apply to dividends
described in paragraph (1)(B) and substituted ''limitation provided
by subsection (a)(2) applies with respect to income described in
paragraph (1)(B) and (C)'' for ''limitation provided by subsection
(a)(2) applies with respect to income other than the interest
income described in paragraph (2)''.
Subsec. (f)(5). Pub. L. 92-178, Sec. 502(b)(4), added par. (5).
1969 - Subsec. (b)(1). Pub. L. 91-172, Sec. 506(b)(1),
substituted ''(A) with the consent of the Secretary or his delegate
with respect to any taxable year or (B) for the taxpayer's first
taxable year beginning after December 31, 1969'' for ''with the
consent of the Secretary or his delegate with respect to any
taxable year''.
Subsec. (b)(2). Pub. L. 91-172, Sec. 506(b)(2), substituted
''Except in a case to which paragraph (1)(B) applies, if the
taxpayer'' for ''If a taxpayer''.
1966 - Subsec. (f)(2). Pub. L. 89-809 inserted reference to
includible corporations in an affiliated group, as defined in
section 1504, of which the taxpayer is a member and inserted
reference to both direct and indirect ownership in subpar. (C) and
inserted provision that, for purposes of subpar. (C), stock owned
directly or indirectly by or for a foreign corporation shall be
considered as being proportionately owned by its shareholders.
1964 - Subsec. (g)(2). Pub. L. 88-272 substituted ''section
1503(b)'' for ''section 1503(d)''.
1962 - Subsec. (f). Pub. L. 87-834, Sec. 10(a), added subsec.
(f). Former subsec. (f) redesignated (g).
Subsec. (g). Pub. L. 87-834, Sec. 10(a), 12(b)(2), redesignated
former subsec. (f) as (g), designated existing provisions as par.
(2), and added par. (1).
1960 - Subsec. (a). Pub. L. 86-780, Sec. 1(a), designated
existing provisions as par. (1), inserted introductory clause ''In
the case of any taxpayer who elects the limitation provided by this
paragraph'' and inserted ''foreign'', ''or possession of the United
States'' and ''or possession'' therein and added par. (2).
Subsec. (b). Pub. L. 86-780, Sec. 1(a), added subsec. (b). Former
subsec. (b) redesignated (c).
Subsec. (c). Pub. L. 86-780, Sec. 1(b), redesignated former
subsec. (b) as (c) and inserted ''applicable'' before
''limitation'' therein. Former subsec. (c) redesignated (d).
Subsec. (d). Pub. L. 86-780, Sec. 1(c), redesignated former
subsec. (c) as (d) and inserted ''applicable'' before
''limitation'' in two places.
Subsecs. (e), (f). Pub. L. 86-780, Sec. 1(d), added subsecs. (e)
and (f).
1958 - Subsec. (c). Pub. L. 85-866 added subsec. (c).
EFFECTIVE DATES OF 2005 AMENDMENT
P.L. 109-135, Section 403(l)
(l) Amendment Related to <<NOTE: 26 USC 864 note.>> Section 403 of
the Act.--Section 403 of the American Jobs Creation Act of 2004 is
amended by adding at the end the following new subsection:
(d) Transition Rule.--If the <<NOTE: Applicability.>> taxpayer
elects (at such time and in such form and manner as the Secretary of the
Treasury may prescribe) to have the rules of this subsection apply--
(1) the amendments made by this section shall not apply to
taxable years beginning after December 31, 2002, and before
January 1, 2005, and
(2) in the case of taxable years beginning after December
31, 2004, clause (iv) of section 904(d)(4)(C) of the Internal
Revenue Code of 1986 (as amended by this section) shall be
applied by substituting `January 1, 2005' for `January 1, 2003'
both places it appears.
EFFECTIVE DATES OF 2004 AMENDMENT
Amendment by Pub.L.108-357,Sec.895(a), shall apply to
dispositions after the date of the enactment of this Act.
Amendment by Sec.404,Pub.L.108-357 is effective as follows:
Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
(2) Transitional rule relating to income tax base
difference.--Section 904(d)(2)(H)(ii) of the Internal Revenue
Code of 1986, as added by subsection (e),Sec. 404, shall apply
to taxable years beginning after December 31, 2004.
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by section 201(b)(2)(G) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 201(e)(2)
of Pub. L. 107-16, set out as a note under section 24 of this
title.
Amendment by section 202(f)(2)(C) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 202(g)(1)
of Pub. L. 107-16, set out as a note under section 23 of this
title.
Amendment by section 618(b)(2)(D) of Pub. L. 107-16 applicable to
taxable years beginning after Dec. 31, 2001, see section 618(d) of
Pub. L. 107-16, set out as a note under section 24 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to taxable years
beginning after Dec. 31, 1998, see section 501(c) of Pub. L.
106-170, set out as a note under section 24 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 311(c)(3) of Pub. L. 105-34 applicable to
taxable years ending after May 6, 1997, see section 311(d) of Pub.
L. 105-34, set out as a note under section 1 of this title.
Section 1101(b) of Pub. L. 105-34 provided that: ''The amendment
made by subsection (a) (amending this section) shall apply to
taxable years beginning after December 31, 1997.''
Section 1105(c) of Pub. L. 105-34 provided that: ''The amendments
made by this section (amending this section) shall apply to taxable
years beginning after December 31, 2002.''
Section 1111(c)(2) of Pub. L. 105-34 provided that: ''The
amendment made by subsection (b) (amending this section) shall
apply to distributions after the date of the enactment of this Act
(Aug. 5, 1997).''
Amendment by section 1163(b) of Pub. L. 105-34 effective Aug. 5,
1997, see section 1163(c) of Pub. L. 105-34, set out as a note
under section 902 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1501(d) of Pub. L. 104-188 provided that: ''The
amendments made by this section (amending this section and sections
951, 956, 959, 989, and 1297 of this title and repealing section
956A of this title) shall apply to taxable years of foreign
corporations beginning after December 31, 1996, and to taxable
years of United States shareholders within which or with which such
taxable years of foreign corporations end.''
Amendment by section 1703(i)(1) of Pub. L. 104-188 effective as
if included in the provision of the Revenue Reconciliation Act of
1993, Pub. L. 103-66, Sec. 13001-13444, to which such amendment
relates, see section 1703(o) of Pub. L. 104-188, set out as a note
under section 39 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by section 13227(d) of Pub. L. 103-66 applicable to
taxable years beginning after Dec. 31, 1993, see section 13227(f)
of Pub. L. 103-66 set out as a note under section 56 of this title.
Section 13235(c) of Pub. L. 103-66 provided that: ''The
amendments made by this section (amending this section and sections
907 and 954 of this title) shall apply to taxable years beginning
after December 31, 1992.''
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11101(d)(5) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11101(e)
of Pub. L. 101-508, set out as a note under section 1 of this
title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7402(b) of Pub. L. 101-239 provided that: ''The amendment
made by subsection (a) (amending this section) shall apply to
taxable years beginning after July 10, 1989.''
Amendment by section 7811(i)(1) 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
Section 1012(bb)(4)(B) of Pub. L. 100-647 provided that: ''The
amendment made by subparagraph (A) (amending this section) shall
take effect as if included in the amendment made by section 121 of
the Tax Reform Act of 1984 (Pub. L. 98-369).''
Amendment by sections 1003(b)(2) and 1012(a)(1)(A), (2)-(4),
(6)-(11), (c), (p)(11), (29), (q)(12) of 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.
Amendment by section 2004(l) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provisions of the
Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(13) 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 701(e)(4)(H) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
Section 1201(e) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1012(a)(5), Nov. 10, 1988, 102 Stat. 3495; Pub. L.
101-239, title VII, Sec. 7404(a), Dec. 19, 1989, 103 Stat. 2361,
provided that:
''(1) In general. - Except as provided in this subsection, the
amendments made by this section (amending this section and sections
864 and 954 of this title) shall apply to taxable years beginning
after December 31, 1986.
''((2) Repealed. Pub. L. 101-239, title VII, Sec. 7404(a), Dec.
19, 1989, 103 Stat. 2361.)
''(3) Special rule for taxpayer with overall foreign loss. -
''(A) In general. - If a taxpayer incorporated on June 20,
1928, the principal headquarters of which is in Minneapolis,
Minnesota, sustained an overall foreign loss (as defined in
section 904(f)(2) of the Internal Revenue Code of 1954 (now
1986)) in taxable years beginning before January 1, 1986, in
connection with 2 separate trades or businesses which the
taxpayer had, during 1985, substantially disposed of in tax-free
transactions pursuant to section 355 of such Code, then an
amount, not to exceed $40,000,000 of foreign source income,
which, but for this paragraph, would not be treated as overall
limitation income, shall be so treated.
''(B) Substantial disposition. - For purposes of this
paragraph, a taxpayer shall be treated as having substantially
disposed of a trade or business if the retained portion of such
business had sales of less than 10 percent of the annual sales of
such business for taxable years ending in 1985.''
(Section 7404(b), (c) of Pub. L. 101-239 provided that:
(''(b) Effective Date. - The repeal made by subsection (a)
(amending section 1201(e) of Pub. L. 99-514, set out above) shall
apply to taxable years beginning after December 31, 1989.
(''(c) Exception for Certain Taxpayers With Substantial Loan Loss
Reserves. -
(''(1) In general. - The repeal made by subsection (a) shall
not apply to any taxpayer if, on any financial statement filed by
such taxpayer for regulatory purposes with respect to any quarter
ending during the period beginning on March 31, 1989, and ending
on December 31, 1989, such taxpayer showed loss reserves against
its qualified loans equal to at least 25 percent of the amount of
such loans.
(''(2) Definitions and special rules. - For purposes of this
subsection -
(''(A) Qualified loan. - The term 'qualified loan' has the
meaning given such term by section 1201(e)(2)(H) of the Tax
Reform Act of 1986 (Pub. L. 99-514, formerly set out above) (as
in effect before its repeal by subsection (a)).
(''(B) Parent-subsidiary controlled groups. - In the case of
any taxpayer which is a member of a parent-subsidiary
controlled group (as defined in section 585(c)(5)(A) (26 U.S.C.
585(c)(5)(A))), this subsection shall be applied by treating
all members of such group as 1 taxpayer.'')
Section 1203(b) of Pub. L. 99-514 provided that: ''The amendment
made by subsection (a) (amending this section) shall apply to
losses incurred in taxable years beginning after December 31,
1986.''
Amendment by section 1211(b)(3) 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 1235(f)(4) of Pub. L. 99-514 applicable to
taxable years of foreign corporations beginning after Dec. 31,
1986, see section 1235(h) of Pub. L. 99-514, set out as an
Effective Date note under section 1291 of this title.
Section 1810(a)(1)(B) of Pub. L. 99-514 provided that: ''The
amendment made by subparagraph (A) (amending this section) shall
take effect on March 28, 1985. In the case of any taxable year
ending after such date of any corporation treated as a United
States-owned foreign corporation by reason of the amendment made by
subparagraph (A) -
''(i) only income received or accrued by such corporation after
such date shall be taken into account under section 904(g) of the
Internal Revenue Code of 1954 (now 1986); except that
''(ii) paragraph (5) of such section 904(g) shall be applied by
taking into account all income received or accrued by such
corporation during such taxable year.''
Section 1810(b)(4)(B) of Pub. L. 99-514 provided that:
''(i) The amendment made by subparagraph (A) (amending this
section) insofar as it adds the last sentence to subparagraph (E)
of section 905(d)(3) (904(d)(3)) shall take effect on March 28,
1985. In the case of any taxable year ending after such date of any
corporation treated as a designated payor corporation by reason of
the amendment made by subparagraph (A) -
''(I) only income received or accrued by such corporation after
such date shall be taken into account under section 904(d)(3) of
the Internal Revenue Code of 1954 (now 1986); except that
''(II) subparagraph (C) of such section 904(d)(3) shall be
applied by taking into account all income received or accrued by
such corporation during such taxable year.
''(ii) The amendment made by subparagraph (A) insofar as it adds
clause (iv) to subparagraph (E) of section 904(d)(3) shall take
effect on December 31, 1985. For purposes of such amendment, the
rule of the second sentence of clause (i) shall be applied by
taking into account December 31, 1985, in lieu of March 28, 1985.''
Amendment by sections 1810(b)(1)-(3) and 1876(d)(2) of Pub. L.
99-514 effective, except as otherwise provided, as if included in
the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div.
A, to which such amendment relates, see section 1881 of Pub. L.
99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 121(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1810(a)(2), (3), Oct. 22, 1986, 100 Stat.
2095, 2822, provided that:
''(1) In general. - Except as otherwise provided in this
subsection, the amendment made by subsection (a) (amending this
section) shall take effect on the date of the enactment of this Act
(July 18, 1984). In the case of any taxable year of any United
States-owned foreign corporation ending after the date of the
enactment of this Act -
''(A) only income received or accrued by such foreign
corporation after such date of enactment shall be taken into
account under section 904(g) of the Internal Revenue Code of 1986
(formerly I.R.C. 1954) (as added by subsection (a)); except that
''(B) paragraph (5) of such section 904(g) (relating to
exception where small amount of United States source income)
shall be applied by taking into account all income received or
accrued by such foreign corporation during such taxable year.
''(2) Special rule for applicable cfc. -
''(A) In general. - In the case of qualified interest received
or accrued by an applicable CFC before January 1, 1992 -
''(i) such interest shall not be taken into account under
section 904(g) of the Internal Revenue Code of 1986 (as added
by subsection (a)), except that
''(ii) such interest shall be taken into account for purposes
of applying paragraph (5) of such section 904(g) (relating to
exception where small amount of United States source income).
''(B) Qualified interest. - For purposes of subparagraph (A),
the term 'qualified interest' means -
''(i) the aggregate amount of interest received or accrued
during any taxable year by an applicable CFC on United States
affiliate obligations held by such applicable CFC, multiplied
by,
''(ii) a fraction (not in excess of 1) -
''(I) the numerator of which is the sum of the aggregate
principal amount of United States affiliate obligations held
by the applicable CFC on March 31, 1984, but not in excess of
the applicable limit, and
''(II) the denominator of which is the average daily
principal amount of United States affiliate obligations held
by such applicable CFC during the taxable year.
Proper adjustments shall be made to the numerator described in
clause (ii)(I) for original issue discount accruing after March
31, 1984, on CFC obligations and United States affiliate
obligations.
''(C) Adjustment for retirement of cfc obligations. - The
amount described in subparagraph (B)(ii)(I) for any taxable year
shall be reduced by the sum of -
''(i) the excess of (I) the aggregate principal amount of CFC
obligations which are outstanding on March 31, 1984, but only
with respect to obligations issued before March 8, 1984, or
issued after March 7, 1984, by the applicable CFC pursuant to a
binding commitment in effect on March 7, 1984, over (II) the
average daily outstanding principal amount during the taxable
year of the CFC obligations described in subclause (I), and
''(ii) the portion of the equity of such applicable CFC
allocable to the excess described in clause (i) (determined on
the basis of the debt-equity ratio of such applicable CFC on
March 31, 1984).
''(D) Applicable cfc. - For purposes of this paragraph, the
term 'applicable CFC' means any controlled foreign corporation
(within the meaning of section 957) -
''(i) which was in existence on March 31, 1984, and
''(ii) the principal purpose of which on such date consisted
of the issuing of CFC obligations (or short-term borrowing from
nonaffiliated persons) and lending the proceeds of such
obligations (or such borrowing) to affiliates.
''(E) Affiliates; united states affiliates. - For purposes of
this paragraph -
''(i) Affiliate. - The term 'affiliate' means any person who
is a related person (within the meaning of section 482 of the
Internal Revenue Code of 1986) to the applicable CFC.
''(ii) United states affiliate. - The term 'United States
affiliate' means any United States person which is an affiliate
of the applicable CFC.
''(iii) Treatment of certain foreign corporations engaged in
business in united states. - For purposes of clause (ii), a
foreign corporation shall be treated as a United States person
with respect to any interest payment made by such corporation
if -
''(I) at least 50 percent of the gross income from all
sources of such corporation for the 3-year period ending with
the close of its last taxable year ending on or before March
31, 1984, was effectively connected with the conduct of a
trade or business within the United States, and
''(II) at least 50 percent of the gross income from all
sources of such corporation for the 3-year period ending with
the close of its taxable year preceding the payment of such
interest was effectively connected with the conduct of a
trade or business within the United States.
''(F) United states affiliate obligations. - For purposes of
this paragraph, the term 'United States affiliate obligations'
means any obligation of (and payable by) a United States
affiliate.
''(G) CFC obligation. - For purposes of this paragraph, the
term 'CFC obligation' means any obligation of (and issued by) a
CFC if -
''(i) the requirements of clause (i) of section 163(f)(2)(B)
of the Internal Revenue Code of 1986 are met with respect to
such obligation, and
''(ii) in the case of an obligation issued after December 31,
1982, the requirements of clause (ii) of such section
163(f)(2)(B) are met with respect to such obligation.
''(H) Treatment of obligations with original issue discount. -
For purposes of this paragraph, in the case of any obligation
with original issue discount, the principal amount of such
obligation as of any day shall be treated as equal to the revised
issue price as of such day (as defined in section 1278(a)(4) of
the Internal Revenue Code of 1986).
''(I) Applicable limit. - For purposes of subparagraph
(B)(ii)(I), the term 'applicable limit' means the sum of -
''(i) the equity of the applicable CFC on March 31, 1984, and
''(ii) the aggregate principal amount of CFC obligations
outstanding o