Subpart D—Miscellaneous Provisions
Editorial Notes
Amendments
1989—
1986—
1980—
1966—
1961—
§891. Doubling of rates of tax on citizens and corporations of certain foreign countries
Whenever the President finds that, under the laws of any foreign country, citizens or corporations of the United States are being subjected to discriminatory or extraterritorial taxes, the President shall so proclaim and the rates of tax imposed by sections 1, 3, 11, 801, 831, 852, 871, and 881 shall, for the taxable year during which such proclamation is made and for each taxable year thereafter, be doubled in the case of each citizen and corporation of such foreign country; but the tax at such doubled rate shall be considered as imposed by such sections as the case may be. In no case shall this section operate to increase the taxes imposed by such sections (computed without regard to this section) to an amount in excess of 80 percent of the taxable income of the taxpayer (computed without regard to the deductions allowable under section 151 and under part VIII of subchapter B). Whenever the President finds that the laws of any foreign country with respect to which the President has made a proclamation under the preceding provisions of this section have been modified so that discriminatory and extraterritorial taxes applicable to citizens and corporations of the United States have been removed, he shall so proclaim, and the provisions of this section providing for doubled rates of tax shall not apply to any citizen or corporation of such foreign country with respect to any taxable year beginning after such proclamation is made.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1986—
1984—
1959—
1956—Act Mar. 13, 1956, inserted reference to section 811.
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1959 Amendment
Amendment by
Effective Date of 1956 Amendment
Amendment by act Mar. 13, 1956, applicable only to taxable years beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956, set out as a note under
§892. Income of foreign governments and of international organizations
(a) Foreign governments
(1) In general
The income of foreign governments received from—
(A) investments in the United States in—
(i) stocks, bonds, or other domestic securities owned by such foreign governments, or
(ii) financial instruments held in the execution of governmental financial or monetary policy, or
(B) interest on deposits in banks in the United States of moneys belonging to such foreign governments,
shall not be included in gross income and shall be exempt from taxation under this subtitle.
(2) Income received directly or indirectly from commercial activities
(A) In general
Paragraph (1) shall not apply to any income—
(i) derived from the conduct of any commercial activity (whether within or outside the United States),
(ii) received by a controlled commercial entity or received (directly or indirectly) from a controlled commercial entity, or
(iii) derived from the disposition of any interest in a controlled commercial entity.
(B) Controlled commercial entity
For purposes of subparagraph (A), the term "controlled commercial entity" means any entity engaged in commercial activities (whether within or outside the United States) if the government—
(i) holds (directly or indirectly) any interest in such entity which (by value or voting interest) is 50 percent or more of the total of such interests in such entity, or
(ii) holds (directly or indirectly) any other interest in such entity which provides the foreign government with effective control of such entity.
For purposes of the preceding sentence, a central bank of issue shall be treated as a controlled commercial entity only if engaged in commercial activities within the United States.
(3) Treatment as resident
For purposes of this title, a foreign government shall be treated as a corporate resident of its country. A foreign government shall be so treated for purposes of any income tax treaty obligation of the United States if such government grants equivalent treatment to the Government of the United States.
(b) International organizations
The income of international organizations received from investments in the United States in stocks, bonds, or other domestic securities owned by such international organizations, or from interest on deposits in banks in the United States of moneys belonging to such international organizations, or from any other source within the United States, shall not be included in gross income and shall be exempt from taxation under this subtitle.
(c) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1990—Subsec. (a)(2)(A).
1988—Subsec. (a)(2)(A).
Subsec. (a)(3).
1986—
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For nonapplication of amendment by section 1247(a) of
§893. Compensation of employees of foreign governments or international organizations
(a) Rule for exclusion
Wages, fees, or salary of any employee of a foreign government or of an international organization (including a consular or other officer, or a nondiplomatic representative), received as compensation for official services to such government or international organization shall not be included in gross income and shall be exempt from taxation under this subtitle if—
(1) such employee is not a citizen of the United States, or is a citizen of the Republic of the Philippines (whether or not a citizen of the United States); and
(2) in the case of an employee of a foreign government, the services are of a character similar to those performed by employees of the Government of the United States in foreign countries; and
(3) in the case of an employee of a foreign government, the foreign government grants an equivalent exemption to employees of the Government of the United States performing similar services in such foreign country.
(b) Certificate by Secretary of State
The Secretary of State shall certify to the Secretary of the Treasury the names of the foreign countries which grant an equivalent exemption to the employees of the Government of the United States performing services in such foreign countries, and the character of the services performed by employees of the Government of the United States in foreign countries.
(c) Limitation on exclusion
Subsection (a) shall not apply to—
(1) any employee of a controlled commercial entity (as defined in section 892(a)(2)(B)), or
(2) any employee of a foreign government whose services are primarily in connection with a commercial activity (whether within or outside the United States) of the foreign government.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1988—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
§894. Income affected by treaty
(a) Treaty provisions
(1) In general
The provisions of this title shall be applied to any taxpayer with due regard to any treaty obligation of the United States which applies to such taxpayer.
(2) Cross reference
For relationship between treaties and this title, see section 7852(d).
(b) Permanent establishment in United States
For purposes of applying any exemption from, or reduction of, any tax provided by any treaty to which the United States is a party with respect to income which is not effectively connected with the conduct of a trade or business within the United States, a nonresident alien individual or a foreign corporation shall be deemed not to have a permanent establishment in the United States at any time during the taxable year. This subsection shall not apply in respect of the tax computed under section 877(b).
(c) Denial of treaty benefits for certain payments through hybrid entities
(1) Application to certain payments
A foreign person shall not be entitled under any income tax treaty of the United States with a foreign country to any reduced rate of any withholding tax imposed by this title on an item of income derived through an entity which is treated as a partnership (or is otherwise treated as fiscally transparent) for purposes of this title if—
(A) such item is not treated for purposes of the taxation laws of such foreign country as an item of income of such person,
(B) the treaty does not contain a provision addressing the applicability of the treaty in the case of an item of income derived through a partnership, and
(C) the foreign country does not impose tax on a distribution of such item of income from such entity to such person.
(2) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to determine the extent to which a taxpayer to which paragraph (1) does not apply shall not be entitled to benefits under any income tax treaty of the United States with respect to any payment received by, or income attributable to any activities of, an entity organized in any jurisdiction (including the United States) that is treated as a partnership or is otherwise treated as fiscally transparent for purposes of this title (including a common investment trust under section 584, a grantor trust, or an entity that is disregarded for purposes of this title) and is treated as fiscally nontransparent for purposes of the tax laws of the jurisdiction of residence of the taxpayer.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1997—Subsec. (c).
1988—Subsec. (a).
1966—
Statutory Notes and Related Subsidiaries
Effective Date of 1997 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1966 Amendment
§895. Income derived by a foreign central bank of issue from obligations of the United States or from bank deposits
Income derived by a foreign central bank of issue from obligations of the United States or of any agency or instrumentality thereof (including beneficial interests, participations, and other instruments issued under section 302(c) of the Federal National Mortgage Association Charter Act (
(Added
Editorial Notes
Amendments
1966—
Statutory Notes and Related Subsidiaries
Effective Date of 1966 Amendment
Amendment by
Effective Date
§896. Adjustment of tax on nationals, residents, and corporations of certain foreign countries
(a) Imposition of more burdensome taxes by foreign country
Whenever the President finds that—
(1) under the laws of any foreign country, considering the tax system of such foreign country, citizens of the United States not residents of such foreign country or domestic corporations are being subjected to more burdensome taxes, on any item of income received by such citizens or corporations from sources within such foreign country, than taxes imposed by the provisions of this subtitle on similar income derived from sources within the United States by residents or corporations of such foreign country,
(2) such foreign country, when requested by the United States to do so, has not acted to revise or reduce such taxes so that they are no more burdensome than taxes imposed by the provisions of this subtitle on similar income derived from sources within the United States by residents or corporations of such foreign country, and
(3) it is in the public interest to apply pre-1967 tax provisions in accordance with the provisions of this subsection to residents or corporations of such foreign country,
the President shall proclaim that the tax on such similar income derived from sources within the United States by residents or corporations of such foreign country shall, for taxable years beginning after such proclamation, be determined under this subtitle without regard to amendments made to this subchapter and
(b) Imposition of discriminatory taxes by foreign country
Whenever the President finds that—
(1) under the laws of any foreign country, citizens of the United States or domestic corporations (or any class of such citizens or corporations) are, with respect to any item of income, being subjected to a higher effective rate of tax than are nationals, residents, or corporations of such foreign country (or a similar class of such nationals, residents, or corporations) under similar circumstances;
(2) such foreign country, when requested by the United States to do so, has not acted to eliminate such higher effective rate of tax; and
(3) it is in the public interest to adjust, in accordance with the provisions of this subsection, the effective rate of tax imposed by this subtitle on similar income of nationals, residents, or corporations of such foreign country (or such similar class of such nationals, residents, or corporations),
the President shall proclaim that the tax on similar income of nationals, residents, or corporations of such foreign country (or such similar class of such nationals, residents, or corporations) shall, for taxable years beginning after such proclamation, be adjusted so as to cause the effective rate of tax imposed by this subtitle on such similar income to be substantially equal to the effective rate of tax imposed by such foreign country on such item of income of citizens of the United States or domestic corporations (or such class of citizens or corporations). In implementing a proclamation made under this subsection, the effective rate of tax imposed by this subtitle on an item of income may be adjusted by the disallowance, in whole or in part, of any deduction, credit, or exemption which would otherwise be allowed with respect to that item of income or by increasing the rate of tax otherwise applicable to that item of income.
(c) Alleviation of more burdensome or discriminatory taxes
Whenever the President finds that—
(1) the laws of any foreign country with respect to which the President has made a proclamation under subsection (a) have been modified so that citizens of the United States not residents of such foreign country or domestic corporations are no longer subject to more burdensome taxes on the item of income derived by such citizens or corporations from sources within such foreign country, or
(2) the laws of any foreign country with respect to which the President has made a proclamation under subsection (b) have been modified so that citizens of the United States or domestic corporations (or any class of such citizens or corporations) are no longer subject to a higher effective rate of tax on the item of income,
he shall proclaim that the tax imposed by this subtitle on the similar income of nationals, residents, or corporations of such foreign country shall, for any taxable year beginning after such proclamation, be determined under this subtitle without regard to such subsection.
(d) Notification of Congress required
No proclamation shall be issued by the President pursuant to this section unless, at least 30 days prior to such proclamation, he has notified the Senate and the House of Representatives of his intention to issue such proclamation.
(e) Implementation by regulations
The Secretary shall prescribe such regulations as he deems necessary or appropriate to implement this section.
(Added
Editorial Notes
References in Text
The date of enactment of this section, referred to in the provisions following subsec. (a)(3), is the date of enactment of
Amendments
1976—Subsec. (e).
Statutory Notes and Related Subsidiaries
Effective Date
Section applicable with respect to taxable years beginning after Dec. 31, 1966, see section 105(d) of
§897. Disposition of investment in United States real property
(a) General rule
(1) Treatment as effectively connected with United States trade or business
For purposes of this title, gain or loss of a nonresident alien individual or a foreign corporation from the disposition of a United States real property interest shall be taken into account—
(A) in the case of a nonresident alien individual, under section 871(b)(1), or
(B) in the case of a foreign corporation, under section 882(a)(1),
as if the taxpayer were engaged in a trade or business within the United States during the taxable year and as if such gain or loss were effectively connected with such trade or business.
(2) Minimum tax on nonresident alien individuals
(A) In general
In the case of any nonresident alien individual, the taxable excess for purposes of section 55(b)(1) shall not be less than the lesser of—
(i) the individual's alternative minimum taxable income (as defined in section 55(b)(1)(D)) for the taxable year, or
(ii) the individual's net United States real property gain for the taxable year.
(B) Net United States real property gain
For purposes of subparagraph (A), the term "net United States real property gain" means the excess of—
(i) the aggregate of the gains for the taxable year from dispositions of United States real property interests, over
(ii) the aggregate of the losses for the taxable year from dispositions of such interests.
(b) Limitation on losses of individuals
In the case of an individual, a loss shall be taken into account under subsection (a) only to the extent such loss would be taken into account under section 165(c) (determined without regard to subsection (a) of this section).
(c) United States real property interest
For purposes of this section—
(1) United States real property interest
(A) In general
Except as provided in subparagraph (B) or subsection (k), the term "United States real property interest" means—
(i) an interest in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the Virgin Islands, and
(ii) any interest (other than an interest solely as a creditor) in any domestic corporation unless the taxpayer establishes (at such time and in such manner as the Secretary by regulations prescribes) that such corporation was at no time a United States real property holding corporation during the shorter of—
(I) the period after June 18, 1980, during which the taxpayer held such interest, or
(II) the 5-year period ending on the date of the disposition of such interest.
(B) Exclusion for interest in certain corporations
The term "United States real property interest" does not include any interest in a corporation if—
(i) as of the date of the disposition of such interest, such corporation did not hold any United States real property interests,
(ii) all of the United States real property interests held by such corporation at any time during the shorter of the periods described in subparagraph (A)(ii)—
(I) were disposed of in transactions in which the full amount of the gain (if any) was recognized, or
(II) ceased to be United States real property interests by reason of the application of this subparagraph to 1 or more other corporations, and
(iii) neither such corporation nor any predecessor of such corporation was a regulated investment company or a real estate investment trust at any time during the shorter of the periods described in subparagraph (A)(ii).
(2) United States real property holding corporation
The term "United States real property holding corporation" means any corporation if—
(A) the fair market value of its United States real property interests equals or exceeds 50 percent of
(B) the fair market value of—
(i) its United States real property interests,
(ii) its interests in real property located outside the United States, plus
(iii) any other of its assets which are used or held for use in a trade or business.
(3) Exception for stock regularly traded on established securities markets
If any class of stock of a corporation is regularly traded on an established securities market, stock of such class shall be treated as a United States real property interest only in the case of a person who, at some time during the shorter of the periods described in paragraph (1)(A)(ii), held more than 5 percent of such class of stock.
(4) Interests held by foreign corporations and by partnerships, trusts, and estates
For purposes of determining whether any corporation is a United States real property holding corporation—
(A) Foreign corporations
Paragraph (1)(A)(ii) shall be applied by substituting "any corporation (whether foreign or domestic)" for "any domestic corporation".
(B) Assets held by partnerships, etc.
Under regulations prescribed by the Secretary, assets held by a partnership, trust, or estate shall be treated as held proportionately by its partners or beneficiaries. Any asset treated as held by a partner or beneficiary by reason of this subparagraph which is used or held for use by the partnership, trust, or estate in a trade or business shall be treated as so used or held by the partner or beneficiary. Any asset treated as held by a partner or beneficiary by reason of this subparagraph shall be so treated for purposes of applying this subparagraph successively to partnerships, trusts, or estates which are above the first partnership, trust, or estate in a chain thereof.
(5) Treatment of controlling interests
(A) In general
Under regulations, for purposes of determining whether any corporation is a United States real property holding corporation, if any corporation (hereinafter in this paragraph referred to as the "first corporation") holds a controlling interest in a second corporation—
(i) the stock which the first corporation holds in the second corporation shall not be taken into account,
(ii) the first corporation shall be treated as holding a portion of each asset of the second corporation equal to the percentage of the fair market value of the stock of the second corporation represented by the stock held by the first corporation, and
(iii) any asset treated as held by the first corporation by reason of clause (ii) which is used or held for use by the second corporation in a trade or business shall be treated as so used or held by the first corporation.
Any asset treated as held by the first corporation by reason of the preceding sentence shall be so treated for purposes of applying the preceding sentence successively to corporations which are above the first corporation in a chain of corporations.
(B) Controlling interest
For purposes of subparagraph (A), the term "controlling interest" means 50 percent or more of the fair market value of all classes of stock of a corporation.
(6) Other special rules
(A) Interest in real property
The term "interest in real property" includes fee ownership and co-ownership of land or improvements thereon, leaseholds of land or improvements thereon, options to acquire land or improvements thereon, and options to acquire leaseholds of land or improvements thereon.
(B) Real property includes associated personal property
The term "real property" includes movable walls, furnishings, and other personal property associated with the use of the real property.
(C) Constructive ownership rules
For purposes of determining under paragraph (3) whether any person holds more than 5 percent of any class of stock and of determining under paragraph (5) whether a person holds a controlling interest in any corporation, section 318(a) shall apply (except that paragraphs (2)(C) and (3)(C) of section 318(a) shall be applied by substituting "5 percent" for "50 percent").
(d) Treatment of distributions by foreign corporations
(1) In general
Except to the extent otherwise provided in regulations, notwithstanding any other provision of this chapter, gain shall be recognized by a foreign corporation on the distribution (including a distribution in liquidation or redemption) of a United States real property interest in an amount equal to the excess of the fair market value of such interest (as of the time of the distribution) over its adjusted basis.
(2) Exceptions
Gain shall not be recognized under paragraph (1)—
(A) if—
(i) at the time of the receipt of the distributed property, the distributee would be subject to taxation under this chapter on a subsequent disposition of the distributed property, and
(ii) the basis of the distributed property in the hands of the distributee is no greater than the adjusted basis of such property before the distribution, increased by the amount of gain (if any) recognized by the distributing corporation, or
(B) if such nonrecognition is provided in regulations prescribed by the Secretary under subsection (e)(2).
(e) Coordination with nonrecognition provisions
(1) In general
Except to the extent otherwise provided in subsection (d) and paragraph (2) of this subsection, any nonrecognition provision shall apply for purposes of this section to a transaction only in the case of an exchange of a United States real property interest for an interest the sale of which would be subject to taxation under this chapter.
(2) Regulations
The Secretary shall prescribe regulations (which are necessary or appropriate to prevent the avoidance of Federal income taxes) providing—
(A) the extent to which nonrecognition provisions shall, and shall not, apply for purposes of this section, and
(B) the extent to which—
(i) transfers of property in reorganization, and
(ii) changes in interests in, or distributions from, a partnership, trust, or estate,
shall be treated as sales of property at fair market value.
(3) Nonrecognition provision defined
For purposes of this subsection, the term "nonrecognition provision" means any provision of this title for not recognizing gain or loss.
[(f) Repealed. Pub. L. 104–188, title I, §1702(g)(2), Aug. 20, 1996, 110 Stat. 1873 ]
(g) Special rule for sales of interest in partnerships, trusts, and estates
Under regulations prescribed by the Secretary, the amount of any money, and the fair market value of any property, received by a nonresident alien individual or foreign corporation in exchange for all or part of its interest in a partnership, trust, or estate shall, to the extent attributable to United States real property interests, be considered as an amount received from the sale or exchange in the United States of such property.
(h) Special rules for certain investment entities
For purposes of this section—
(1) Look-through of distributions
Any distribution by a qualified investment entity to a nonresident alien individual, a foreign corporation, or other qualified investment entity shall, to the extent attributable to gain from sales or exchanges by the qualified investment entity of United States real property interests, be treated as gain recognized by such nonresident alien individual, foreign corporation, or other qualified investment entity from the sale or exchange of a United States real property interest. Notwithstanding the preceding sentence, any distribution by a qualified investment entity to a nonresident alien individual or a foreign corporation with respect to any class of stock which is regularly traded on an established securities market located in the United States shall not be treated as gain recognized from the sale or exchange of a United States real property interest if such individual or corporation did not own more than 5 percent of such class of stock at any time during the 1-year period ending on the date of such distribution.
(2) Sale of stock in domestically controlled entity not taxed
The term "United States real property interest" does not include any interest in a domestically controlled qualified investment entity.
(3) Distributions by domestically controlled qualified investment entities
In the case of a domestically controlled qualified investment entity, rules similar to the rules of subsection (d) shall apply to the foreign ownership percentage of any gain.
(4) Definitions and special rules
(A) Qualified investment entity
The term "qualified investment entity" means—
(i) any real estate investment trust, and
(ii) any regulated investment company which is a United States real property holding corporation or which would be a United States real property holding corporation if the exceptions provided in subsections (c)(3) and (h)(2) did not apply to interests in any real estate investment trust or regulated investment company.
(B) Domestically controlled
The term "domestically controlled qualified investment entity" means any qualified investment entity in which at all times during the testing period less than 50 percent in value of the stock was held directly or indirectly by foreign persons.
(C) Foreign ownership percentage
The term "foreign ownership percentage" means that percentage of the stock of the qualified investment entity which was held (directly or indirectly) by foreign persons at the time during the testing period during which the direct and indirect ownership of stock by foreign persons was greatest.
(D) Testing period
The term "testing period" means whichever of the following periods is the shortest:
(i) the period beginning on June 19, 1980, and ending on the date of the disposition or of the distribution, as the case may be,
(ii) the 5-year period ending on the date of the disposition or of the distribution, as the case may be, or
(iii) the period during which the qualified investment entity was in existence.
(E) Special ownership rules
For purposes of determining the holder of stock under subparagraphs (B) and (C)—
(i) in the case of any class of stock of the qualified investment entity which is regularly traded on an established securities market in the United States, a person holding less than 5 percent of such class of stock at all times during the testing period shall be treated as a United States person unless the qualified investment entity has actual knowledge that such person is not a United States person,
(ii) any stock in the qualified investment entity held by another qualified investment entity—
(I) any class of stock of which is regularly traded on an established securities market, or
(II) which is a regulated investment company which issues redeemable securities (within the meaning of section 2 of the Investment Company Act of 1940),
shall be treated as held by a foreign person, except that if such other qualified investment entity is domestically controlled (determined after application of this subparagraph), such stock shall be treated as held by a United States person, and
(iii) any stock in the qualified investment entity held by any other qualified investment entity not described in subclause (I) or (II) of clause (ii) shall only be treated as held by a United States person in proportion to the stock of such other qualified investment entity which is (or is treated under clause (ii) or (iii) as) held by a United States person.
(5) Treatment of certain wash sale transactions
(A) In general
If an interest in a domestically controlled qualified investment entity is disposed of in an applicable wash sale transaction, the taxpayer shall, for purposes of this section, be treated as having gain from the sale or exchange of a United States real property interest in an amount equal to the portion of the distribution described in subparagraph (B) with respect to such interest which, but for the disposition, would have been treated by the taxpayer as gain from the sale or exchange of a United States real property interest under paragraph (1).
(B) Applicable wash sales transaction
For purposes of this paragraph—
(i) In general
The term "applicable wash sales transaction" means any transaction (or series of transactions) under which a nonresident alien individual, foreign corporation, or qualified investment entity—
(I) disposes of an interest in a domestically controlled qualified investment entity during the 30-day period preceding the ex-dividend date of a distribution which is to be made with respect to the interest and any portion of which, but for the disposition, would have been treated by the taxpayer as gain from the sale or exchange of a United States real property interest under paragraph (1), and
(II) acquires, or enters into a contract or option to acquire, a substantially identical interest in such entity during the 61-day period beginning with the 1st day of the 30-day period described in subclause (I).
For purposes of subclause (II), a nonresident alien individual, foreign corporation, or qualified investment entity shall be treated as having acquired any interest acquired by a person related (within the meaning of section 267(b) or 707(b)(1)) to the individual, corporation, or entity, and any interest which such person has entered into any contract or option to acquire.
(ii) Application to substitute dividend and similar payments
Subparagraph (A) shall apply to—
(I) any substitute dividend payment (within the meaning of section 861), or
(II) any other similar payment specified in regulations which the Secretary determines necessary to prevent avoidance of the purposes of this paragraph.
The portion of any such payment treated by the taxpayer as gain from the sale or exchange of a United States real property interest under subparagraph (A) by reason of this clause shall be equal to the portion of the distribution such payment is in lieu of which would have been so treated but for the transaction giving rise to such payment.
(iii) Exception where distribution actually received
A transaction shall not be treated as an applicable wash sales transaction if the nonresident alien individual, foreign corporation, or qualified investment entity receives the distribution described in clause (i)(I) with respect to either the interest which was disposed of, or acquired, in the transaction.
(iv) Exception for certain publicly traded stock
A transaction shall not be treated as an applicable wash sales transaction if it involves the disposition of any class of stock in a qualified investment entity which is regularly traded on an established securities market within the United States but only if the nonresident alien individual, foreign corporation, or qualified investment entity did not own more than 5 percent of such class of stock at any time during the 1-year period ending on the date of the distribution described in clause (i)(I).
(i) Election by foreign corporation to be treated as domestic corporation
(1) In general
If—
(A) a foreign corporation holds a United States real property interest, and
(B) under any treaty obligation of the United States the foreign corporation is entitled to nondiscriminatory treatment with respect to that interest,
then such foreign corporation may make an election to be treated as a domestic corporation for purposes of this section, section 1445, and section 6039C.
(2) Revocation only with consent
Any election under paragraph (1), once made, may be revoked only with the consent of the Secretary.
(3) Making of election
An election under paragraph (1) may be made only—
(A) if all of the owners of all classes of interests (other than interests solely as a creditor) in the foreign corporation at the time of the election consent to the making of the election and agree that gain, if any, from the disposition of such interest after June 18, 1980, which would be taken into account under subsection (a) shall be taxable notwithstanding any provision to the contrary in a treaty to which the United States is a party, and
(B) subject to such other conditions as the Secretary may prescribe by regulations with respect to the corporation or its shareholders.
In the case of a class of interest (other than an interest solely as a creditor) which is regularly traded on an established securities market, the consent described in subparagraph (A) need only be made by any person if such person held more than 5 percent of such class of interest at some time during the shorter of the periods described in subsection (c)(1)(A)(ii). The constructive ownership rules of subsection (c)(6)(C) shall apply in determining whether a person held more than 5 percent of a class of interest.
(4) Exclusive method of claiming nondiscrimination
The election provided by paragraph (1) shall be the exclusive remedy for any person claiming discriminatory treatment with respect to this section, section 1445, and section 6039C.
(j) Certain contributions to capital
Except to the extent otherwise provided in regulations, gain shall be recognized by a nonresident alien individual or foreign corporation on the transfer of a United States real property interest to a foreign corporation if the transfer is made as paid in surplus or as a contribution to capital, in the amount of the excess of—
(1) the fair market value of such property transferred, over
(2) the sum of—
(A) the adjusted basis of such property in the hands of the transferor, plus
(B) the amount of gain, if any, recognized to the transferor under any other provision at the time of the transfer.
(k) Special rules relating to real estate investment trusts
(1) Increase in percentage ownership for exceptions for persons holding publicly traded stock
(A) Dispositions
In the case of any disposition of stock in a real estate investment trust, paragraphs (3) and (6)(C) of subsection (c) shall each be applied by substituting "more than 10 percent" for "more than 5 percent".
(B) Distributions
In the case of any distribution from a real estate investment trust, subsection (h)(1) shall be applied by substituting "10 percent" for "5 percent".
(2) Stock held by qualified shareholders not treated as United States real property interest
(A) In general
Except as provided in subparagraph (B)—
(i) stock of a real estate investment trust which is held directly (or indirectly through 1 or more partnerships) by a qualified shareholder shall not be treated as a United States real property interest, and
(ii) notwithstanding subsection (h)(1), any distribution to a qualified shareholder shall not be treated as gain recognized from the sale or exchange of a United States real property interest to the extent the stock of the real estate investment trust held by such qualified shareholder is not treated as a United States real property interest under clause (i).
(B) Exception
In the case of a qualified shareholder with one or more applicable investors—
(i) subparagraph (A)(i) shall not apply to the applicable percentage of the stock of the real estate investment trust held by the qualified shareholder, and
(ii) the applicable percentage of the amounts realized by the qualified shareholder with respect to any disposition of stock in the real estate investment trust or with respect to any distribution from the real estate investment trust attributable to gain from sales or exchanges of a United States real property interest shall be treated as amounts realized from the disposition of United States real property interests.
(C) Special rule for certain distributions treated as sale or exchange
If a distribution by a real estate investment trust is treated as a sale or exchange of stock under section 301(c)(3), 302, or 331 with respect to a qualified shareholder—
(i) in the case of an applicable investor, subparagraph (B) shall apply with respect to such distribution, and
(ii) in the case of any other person, such distribution shall be treated under section 857(b)(3)(F) 1 as a dividend from a real estate investment trust notwithstanding any other provision of this title.
(D) Applicable investor
For purposes of this subsection, the term "applicable investor" means, with respect to any qualified shareholder holding stock in a real estate investment trust, a person (other than a qualified shareholder) which—
(i) holds an interest (other than an interest solely as a creditor) in such qualified shareholder, and
(ii) holds more than 10 percent of the stock of such real estate investment trust (whether or not by reason of the person's ownership interest in the qualified shareholder).
(E) Constructive ownership rules
For purposes of subparagraphs (B)(i) and (D), the constructive ownership rules under subsection (c)(6)(C) shall apply.
(F) Applicable percentage
For purposes of subparagraph (B), the term "applicable percentage" means the percentage of the value of the interests (other than interests held solely as a creditor) in the qualified shareholder held by applicable investors.
(3) Qualified shareholder
For purposes of this subsection—
(A) In general
The term "qualified shareholder" means a foreign person which—
(i)(I) is eligible for benefits of a comprehensive income tax treaty with the United States which includes an exchange of information program and the principal class of interests of which is listed and regularly traded on 1 or more recognized stock exchanges (as defined in such comprehensive income tax treaty), or
(II) is a foreign partnership that is created or organized under foreign law as a limited partnership in a jurisdiction that has an agreement for the exchange of information with respect to taxes with the United States and has a class of limited partnership units which is regularly traded on the New York Stock Exchange or Nasdaq Stock Market and such class of limited partnership units value is greater than 50 percent of the value of all the partnership units,
(ii) is a qualified collective investment vehicle, and
(iii) maintains records on the identity of each person who, at any time during the foreign person's taxable year, holds directly 5 percent or more of the class of interest described in subclause (I) or (II) of clause (i), as the case may be.
(B) Qualified collective investment vehicle
For purposes of this subsection, the term "qualified collective investment vehicle" means a foreign person—
(i) which—
(I) is eligible for benefits under the comprehensive income tax treaty described in subparagraph (A)(i)(I), but only if the dividends article of such treaty imposes conditions on the benefits allowable in the case of dividends paid by a real estate investment trust, and
(II) is eligible under such treaty for a reduced rate of withholding with respect to ordinary dividends paid by a real estate investment trust even if such person holds more than 10 percent of the stock of such real estate investment trust,
(ii) which—
(I) is a publicly traded partnership (as defined in section 7704(b)) to which subsection (a) of section 7704 does not apply,
(II) is a withholding foreign partnership for purposes of chapters 3, 4, and 61, and
(III) if such foreign partnership were a domestic corporation, would be a United States real property holding corporation (determined without regard to paragraph (1)) at any time during the 5-year period ending on the date of disposition of, or distribution with respect to, such partnership's interests in a real estate investment trust, or
(iii) which is designated as a qualified collective investment vehicle by the Secretary and is either—
(I) fiscally transparent within the meaning of section 894, or
(II) required to include dividends in its gross income, but entitled to a deduction for distributions to persons holding interests (other than interests solely as a creditor) in such foreign person.
(4) Partnership allocations
(A) In general
For the purposes of this subsection, in the case of an applicable investor who is a nonresident alien individual or a foreign corporation and is a partner in a partnership that is a qualified shareholder, if such partner's proportionate share of USRPI gain for the taxable year exceeds such partner's distributive share of USRPI gain for the taxable year, then
(i) such partner's distributive share of the amount of gain taken into account under subsection (a)(1) by the partner for the taxable year (determined without regard to this paragraph) shall be increased by the amount of such excess, and
(ii) such partner's distributive share of items of income or gain for the taxable year that are not treated as gain taken into account under subsection (a)(1) (determined without regard to this paragraph) shall be decreased (but not below zero) by the amount of such excess.
(B) USRPI gain
For the purposes of this paragraph, the term "USRPI gain" means the excess (if any) of—
(i) the sum of—
(I) any gain recognized from the disposition of a United States real property interest, and
(II) any distribution by a real estate investment trust that is treated as gain recognized from the sale or exchange of a United States real property interest, over
(ii) any loss recognized from the disposition of a United States real property interest.
(C) Proportionate share of USRPI gain
For purposes of this paragraph, an applicable investor's proportionate share of USRPI gain shall be determined on the basis of such investor's share of partnership items of income or gain (excluding gain allocated under section 704(c)), whichever results in the largest proportionate share. If the investor's share of partnership items of income or gain (excluding gain allocated under section 704(c)) may vary during the period such investor is a partner in the partnership, such share shall be the highest share such investor may receive.
(l) Exception for qualified foreign pension funds
(1) In general
For purposes of this section, a qualified foreign pension fund shall not be treated as a nonresident alien individual or a foreign corporation. For purposes of the preceding sentence, an entity all the interests of which are held by a qualified foreign pension fund shall be treated as such a fund.
(2) Qualified foreign pension fund
For purposes of this subsection, the term "qualified foreign pension fund" means any trust, corporation, or other organization or arrangement—
(A) which is created or organized under the law of a country other than the United States,
(B) which is established—
(i) by such country (or one or more political subdivisions thereof) to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (including self-employed individuals) or persons designated by such employees, as a result of services rendered by such employees to their employers, or
(ii) by one or more employers to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (including self-employed individuals) or persons designated by such employees in consideration for services rendered by such employees to such employers,
(C) which does not have a single participant or beneficiary with a right to more than five percent of its assets or income,
(D) which is subject to government regulation and with respect to which annual information about its beneficiaries is provided, or is otherwise available, to the relevant tax authorities in the country in which it is established or operates, and
(E) with respect to which, under the laws of the country in which it is established or operates—
(i) contributions to such trust, corporation, organization, or arrangement which would otherwise be subject to tax under such laws are deductible or excluded from the gross income of such entity or arrangement or taxed at a reduced rate, or
(ii) taxation of any investment income of such trust, corporation, organization or arrangement is deferred, or such income is excluded from the gross income of such entity or arrangement or is taxed at a reduced rate.
(3) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(Added
Editorial Notes
References in Text
Section 2 of the Investment Company Act of 1940, referred to in subsec. (h)(4)(E)(ii)(II), is classified to
Section 857(b)(3)(F), referred to in subsec. (k)(2)(C)(ii), was redesignated section 857(b)(3)(E) and a new subsec. (b)(3)(F) added by
Amendments
2022—Subsec. (a)(2)(A)(i).
2018—Subsec. (a)(1)(A).
Subsec. (h)(4)(A)(ii).
Subsec. (k)(2).
Subsec. (k)(2)(B).
Subsec. (k)(2)(B)(i).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(D).
Subsec. (k)(2)(E).
Subsec. (k)(2)(F).
Subsec. (k)(3)(B)(i).
Subsec. (k)(3)(B)(ii)(II).
Subsec. (k)(3)(B)(ii)(III).
Subsec. (l).
Subsec. (l)(1).
"(A) a qualified foreign pension fund, or
"(B) any entity all of the interests of which are held by a qualified foreign pension fund."
Subsec. (l)(2)(B).
Subsec. (l)(2)(D).
Subsec. (l)(2)(E)(i).
Subsec. (l)(2)(E)(ii).
2017—Subsec. (a)(2)(A).
2015—Subsec. (c)(1)(A).
Subsec. (c)(1)(B)(iii).
Subsec. (h)(4).
Subsec. (h)(4)(A).
Subsec. (h)(4)(A)(ii).
Subsec. (h)(4)(E).
Subsec. (k).
Subsec. (l).
2014—Subsec. (h)(4)(A)(ii).
2013—Subsec. (h)(4)(A)(ii).
2010—Subsec. (h)(4)(A)(ii).
2008—Subsec. (h)(4)(A)(ii).
2006—Subsec. (h)(1).
Subsec. (h)(4)(A)(i)(II).
Subsec. (h)(4)(A)(ii).
Subsec. (h)(5).
2005—Subsec. (h)(1).
2004—Subsec. (h).
Subsec. (h)(1).
Subsec. (h)(2).
Subsec. (h)(3).
Subsec. (h)(4)(A).
Subsec. (h)(4)(B).
Subsec. (h)(4)(C), (D)(iii).
1996—Subsec. (f).
"(f)
"(1) the adjusted basis of such property before the distribution, increased by
"(2) the sum of—
"(A) any gain recognized by the distributing corporation on the distribution, and
"(B) any tax paid under this chapter by the distributee on such distribution."
1993—Subsec. (a)(2).
1990—Subsec. (k).
"(1) a foreign corporation adopts, or has adopted, a plan of liquidation described in section 334(b)(2)(A), and
"(2) the 12-month period described in section 334(b)(2)(B) for the acquisition by purchase of the stock of the foreign corporation, began after December 31, 1979, and before November 26, 1980,
then such foreign corporation may make an election to be treated, for the period following June 18, 1980, as a domestic corporation pursuant to section 897(i)(1). Notwithstanding an election under the preceding sentence, any selling shareholder of such corporation shall be considered to have sold the stock of a foreign corporation."
1988—Subsec. (l).
1986—Subsec. (a)(2).
"(i) the individual's alternative minimum taxable income (as defined in section 55(b)) for the taxable year, or
"(ii) the individual's net United States real property gain for the taxable year."
Subsec. (d).
Subsec. (i)(1), (4).
1982—Subsec. (a)(2)(A).
1981—Subsec. (c)(1)(A)(i).
Subsec. (c)(4)(B).
Subsec. (d)(1)(B).
Subsec. (i).
Subsecs. (j) to (l).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Amendment by
Effective Date of 2018 Amendment
Amendment by section 101(p)(1)–(6), (q) of
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2015 Amendment
"(1)
"(2)
"(A) which makes a distribution after December 31, 2014, and before the date of the enactment of this Act, and
"(B) which would (but for the second sentence of paragraph (1)) have been required to withhold with respect to such distribution under section 1445 of such Code,
such investment company shall not be liable to any person to whom such distribution was made for any amount so withheld and paid over to the Secretary of the Treasury."
Amendment by section 322(a)(1), (2)(A) of
"(2)
[(3) Repealed.
Effective Date of 2014 Amendment
"(1)
"(2)
"(A) which makes a distribution after December 31, 2013, and before the date of the enactment of this Act, and
"(B) which would (but for the second sentence of paragraph (1)) have been required to withhold with respect to such distribution under section 1445 of such Code,
such investment company shall not be liable to any person to whom such distribution was made for any amount so withheld and paid over to the Secretary of the Treasury."
Effective Date of 2013 Amendment
"(1)
"(2)
"(A) which makes a distribution after December 31, 2011, and before the date of the enactment of this Act; and
"(B) which would (but for the second sentence of paragraph (1)) have been required to withhold with respect to such distribution under section 1445 of such Code,
such investment company shall not be liable to any person to whom such distribution was made for any amount so withheld and paid over to the Secretary of the Treasury."
Effective Date of 2010 Amendment
"(1)
"(2)
"(A) which makes a distribution after December 31, 2009, and before the date of the enactment of this Act [Dec. 17, 2010]; and
"(B) which would (but for the second sentence of paragraph (1)) have been required to withhold with respect to such distribution under section 1445 of such Code,
such investment company shall not be liable to any person to whom such distribution was made for any amount so withheld and paid over to the Secretary of the Treasury."
Effective Date of 2008 Amendment
"(1)
"(2)
"(A) which makes a distribution after December 31, 2007, and before October 4, 2008, and
"(B) which would (but for the second sentence of paragraph (1)) have been required to withhold with respect to such distribution under section 1445 of such Code,
such investment company shall not be liable to any person to whom such distribution was made for any amount so withheld and paid over to the Secretary of the Treasury."
Effective Date of 2006 Amendment
Amendment by section 505(a) of
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by section 411(c)(1) of
Amendment by section 418(a) of
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 631(e)(12) of
Amendment by section 701(e)(4)(G) of
Amendment by section 1810(f)(1) of
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Effective Date
"(a)
"(b)
Repeal
Savings Provision
For provisions that nothing in amendment by
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by section 701(e)(4)(G) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Special Rule for Applying Section 897
"(a)
"(1) such United States real property holding company is a Delaware corporation incorporated on January 17, 1984,
"(2) the transfer, sale, exchange, or other disposition is to any member of a qualified ownership group,
"(3) the recipient of the share of stock elects, for purposes of such section 897, a carryover basis in the transferred shares,
"(4) the transfer, sale, exchange, or other disposition is part of a single integrated plan, whereby the stock of the corporation described in paragraph (1) becomes owned directly by the 2 corporations specifically referred to in subsection (b) or by such 2 corporations and by 1 or both of their jointly owned direct subsidiaries,
"(5) within 20 days after each transfer, sale, exchange, or other disposition, the person making such transfer, sale, exchange, or other disposition notifies the Internal Revenue Service of the transaction, the date of the transaction, the basis of the stock involved, the holding period for such stock, and such other information as the Internal Revenue Service may require, and
"(6) the integrated plan is completed before the date 4 years after the date of the enactment of the Technical and Miscellaneous Revenue Act of 1988 [Nov. 10, 1988].
In the case of any underpayment attributable to a failure to meet any requirement of this subsection, the period during which such underpayment may be assessed shall in no event expire before the date 5 years after the date of the enactment of the Technical and Miscellaneous Revenue Act of 1988.
"(b)
"(c) [Repealed.
"(d)
Gain From Disposition of Investment in United States Real Property by Nonresident Alien Individuals and Foreign Corporations
"(1)
"(2)
"(A) any treaty (hereinafter in this paragraph referred to as the 'old treaty') is renegotiated to resolve conflicts between such treaty and the provisions of section 897 of the Internal Revenue Code of 1986, and
"(B) the new treaty is signed on or after January 1, 1981, and before January 1, 1985,
then paragraph (1) shall be applied with respect to obligations under the old treaty by substituting for 'December 31, 1984' the date (not later than 2 years after the new treaty was signed) specified in the new treaty (or accompanying exchange of notes)."
Adjustment in Basis for Certain Transactions Between Related Persons
"(1)
"(2)
"(A) because the disposition occurred before June 19, 1980, or
"(B) because of any treaty obligation of the United States."
1 See References in Text note below.
§898. Taxable year of certain foreign corporations
(a) General rule
For purposes of this title, the taxable year of any specified foreign corporation shall be the required year determined under subsection (c).
(b) Specified foreign corporation
For purposes of this section—
(1) In general
The term "specified foreign corporation" means any foreign corporation—
(A) which is treated as a controlled foreign corporation for any purpose under subpart F of part III of this subchapter, and
(B) with respect to which the ownership requirements of paragraph (2) are met.
(2) Ownership requirements
(A) In general
The ownership requirements of this paragraph are met with respect to any foreign corporation if a United States shareholder owns, on each testing day, more than 50 percent of—
(i) the total voting power of all classes of stock of such corporation entitled to vote, or
(ii) the total value of all classes of stock of such corporation.
(B) Ownership
For purposes of subparagraph (A), the rules of subsections (a) and (b) of section 958 shall apply in determining ownership.
(3) United States shareholder
The term "United States shareholder" has the meaning given to such term by section 951(b), except that, in the case of a foreign corporation having related person insurance income (as defined in section 953(c)(2)), the Secretary may treat any person as a United States shareholder for purposes of this section if such person is treated as a United States shareholder under section 953(c)(1).
(c) Determination of required year
(1) In general
The required year is—
(A) the majority U.S. shareholder year, or
(B) if there is no majority U.S. shareholder year, the taxable year prescribed under regulations.
(2) 1-month deferral allowed
A specified foreign corporation may elect, in lieu of the taxable year under paragraph (1)(A), a taxable year beginning 1 month earlier than the majority U.S. shareholder year.
(3) Majority U.S. shareholder year
(A) In general
For purposes of this subsection, the term "majority U.S. shareholder year" means the taxable year (if any) which, on each testing day, constituted the taxable year of—
(i) each United States shareholder described in subsection (b)(2)(A), and
(ii) each United States shareholder not described in clause (i) whose stock was treated as owned under subsection (b)(2)(B) by any shareholder described in such clause.
(B) Testing day
The testing days shall be—
(i) the first day of the corporation's taxable year (determined without regard to this section), or
(ii) the days during such representative period as the Secretary may prescribe.
(Added
Editorial Notes
Amendments
2004—Subsec. (b)(1)(A).
"(A) which is—
"(i) treated as a controlled foreign corporation for any purpose under subpart F of part III of this subchapter, or
"(ii) a foreign personal holding company (as defined in section 552), and".
Subsec. (b)(2)(B).
Subsec. (b)(3).
Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2004 Amendment
Amendment by
Effective Date
"(1)
"(2)
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as having been made with the consent of the Secretary of the Treasury or his delegate, and
"(C) if, by reason of such change, any United States person is required to include in gross income for 1 taxable year amounts attributable to 2 taxable years of such foreign corporation, the amount which would otherwise be required to be included in gross income for such 1 taxable year by reason of the short taxable year of the foreign corporation resulting from such change shall be included in gross income ratably over the 4-taxable-year period beginning with such 1 taxable year."