§921. Exempt foreign trade income excluded from gross income

(a) Exclusion

Exempt foreign trade income of a FSC shall be treated as foreign source income which is not effectively connected with the conduct of a trade or business within the United States.

(b) Proportionate allocation of deductions to exempt foreign trade income

Any deductions of the FSC properly apportioned and allocated to the foreign trade income derived by a FSC from any transaction shall be allocated between-

(1) the exempt foreign trade income derived from such transaction, and

(2) the foreign trade income (other than exempt foreign trade income) derived from such transaction, on a proportionate basis.

(c) Denial of credits

Notwithstanding any other provision of this chapter, no credit (other than a credit allowable under section 27(a), 33, or 34) shall be allowed under this chapter to any FSC.

(d) Foreign trade income, investment income, and carrying charges treated as effectively connected with United States business

For purposes of this chapter-

(1) all foreign trade income of a FSC other than-

(A) exempt foreign trade income, and

(B) section 923(a)(2) non-exempt income,

(2) all interest, dividends, royalties, and other investment income received or accrued by a FSC, and

(3) all carrying charges received or accrued by a FSC,

shall be treated as income effectively connected with a trade or business conducted through a permanent establishment of such corporation within the United States. Income described in paragraph (1) shall be treated as derived from sources within the United States.

(Added Pub. L. 98–369, div. A, title VIII, §801(a), July 18, 1984, 98 Stat. 985 .)

Prior Provisions

A prior section 921, acts Aug. 16, 1954, ch. 736, 68A Stat. 290 ; Oct. 4, 1976, Pub. L. 94–455, title XIX, §1901(a)(116), 90 Stat. 1784 , defined Western Hemisphere trade corporation, prior to repeal by Pub. L. 94–455, title X, §1052(b), Oct. 4, 1976, 90 Stat. 1648 , effective with respect to taxable years beginning after Dec. 31, 1979.

Effective Date

Section 805(a) of title VIII of div. A of Pub. L. 98–369, as amended by Pub. L. 99–514, §2, title XVIII, §1876(i), (o), (p)(4), Oct. 22, 1986, 100 Stat. 2095 , 2900-2902, provided that:

"(1) In general.-Except as provided in this subsection, the amendments made by this title [enacting this section and sections 922 to 927 of this title, amending sections 245, 246, 274, 275, 441, 901, 904, 906, 934, 936, 951, 956, 992, 993, 995, 996, 999, 1248, 6011, 6072, 6501, 6686, and 7651 of this title, and enacting provisions set out as notes under this section and section 991 of this title] shall apply to transactions after December 31, 1984, in taxable years ending after such date.

"(2) Special rule for certain contracts.-To the extent provided in regulations prescribed by the Secretary of the Treasury or his delegate, any event or activity required to occur or required to be performed, before January 1, 1985, by section 924(c) or (d) or 925(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall be treated as meeting the requirements of such section if such event or activity is with respect to-

"(A) any lease of more than 3 years duration which was entered into before January 1, 1985,

"(B) any contract with respect to which the taxpayer uses the completed contract method of accounting which was entered into before January 1, 1985, or

"(C) in the case of any contract other than a lease or contract described in subparagraph (A) or (B), any contract which was entered into before January 1, 1985; except that this subparagraph shall only apply to the first 3 taxable years of the FSC ending after January 1, 1985, or such later taxable years as the Secretary of the Treasury or his delegate may prescribe.

"(3) Section 801(d)(10).-The amendment made by section 801(d)(10) [amending section 996 of this title] shall apply to distributions on or after June 22, 1984.

"(4) Section 803.-The amendments made by section 803 [amending section 441 of this title] shall apply to taxable years beginning after December 31, 1984."

Submission of Biannual Reports to Congress

Section 804(a) of title VIII of div. A of Pub. L. 98–369, as amended by Pub. L. 100–647, title VI, §6252(b)(2)(A), Nov. 10, 1988, 102 Stat. 3753 , provided that: "The Secretary of the Treasury shall, during 1990 and each fourth calendar year thereafter, submit a report to the Congress (using the most recent information available) setting forth an analysis of the operation and effect of the provisions of this title [see Effective Date note above for classification]."

[Section 6252(b)(2)(B) of Pub. L. 100–647 provided that: "The amendment made by subparagaph [sic] (A) [amending section 804(a) of Pub. L. 98–369, set out above] shall take effect as if included in the amendments made by section 804(a) of the Tax Reform Act of 1984 [Pub. L. 98–369, set out above]."]

Section Referred to in Other Sections

This section is referred to in sections 56, 884, 925, 927, 952 of this title.