26 U.S.C. § 863
Items of gross income, expenses, losses, and deductions, other than those specified in sections 861(a) and 862(a), shall be allocated or apportioned to sources within or without the United States, under regulations prescribed by the Secretary. Where items of gross income are separately allocated to sources within the United States, there shall be deducted (for the purpose of computing the taxable income therefrom) the expenses, losses, and other deductions properly apportioned or allocated thereto and a ratable part of other expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in full as taxable income from sources within the United States.
In the case of gross income derived from sources partly within and partly without the United States, the taxable income may first be computed by deducting the expenses, losses, or other deductions apportioned or allocated thereto and a ratable part of any expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income; and the portion of such taxable income attributable to sources within the United States may be determined by processes or formulas of general apportionment prescribed by the Secretary. Gains, profits, and income-
shall be treated as derived partly from sources within and partly from sources without the United States. Gains, profits, and income from the sale or exchange of inventory property described in paragraph (2) shall be allocated and apportioned between sources within and without the United States solely on the basis of the production activities with respect to the property.
All transportation income attributable to transportation which begins and ends in the United States shall be treated as derived from sources within the United States.
50 percent of all transportation income attributable to transportation which-
shall be treated as from sources in the United States.
Subparagraph (A) shall not apply to any transportation income which is income derived from personal services performed by the taxpayer, unless such income is attributable to transportation which-
In the case of transportation income derived from, or in connection with, a vessel, this subparagraph shall only apply if the taxpayer is a citizen or resident alien.
For purposes of this subsection, the term "transportation income" means any income derived from, or in connection with-
For purposes of the preceding sentence, the term "vessel or aircraft" includes any container used in connection with a vessel or aircraft.
Except as provided in regulations, any income derived from a space or ocean activity-
For purposes of paragraph (1)-
The term "space or ocean activity" means-
Such term includes any activity conducted in Antarctica.
The term "space or ocean activity" shall not include-
For purposes of applying section 638, the jurisdiction of any foreign country shall not include any jurisdiction not recognized by the United States.
In the case of any United States person, 50 percent of any international communications income shall be sourced in the United States and 50 percent of such income shall be sourced outside the United States.
Except as provided in regulations or clause (ii), in the case of any person other than a United States person, any international communications income shall be sourced outside the United States.
In the case of any person (other than a United States person) who maintains an office or other fixed place of business in the United States, any international communications income attributable to such office or other fixed place of business shall be sourced in the United States.
For purposes of this section, the term "international communications income" includes all income derived from the transmission of communications or data from the United States to any foreign country (or possession of the United States) or from any foreign country (or possession of the United States) to the United States.
26 U.S.C. § 863
EDITORIAL NOTES
AMENDMENTS2017-Subsec. (b). Pub. L. 115-97 inserted at end of concluding provisions "Gains, profits, and income from the sale or exchange of inventory property described in paragraph (2) shall be allocated and apportioned between sources within and without the United States solely on the basis of the production activities with respect to the property." 1997-Subsec. (c)(2)(B). Pub. L. 105-34 inserted concluding provisions "In the case of transportation income derived from, or in connection with, a vessel, this subparagraph shall only apply if the taxpayer is a citizen or resident alien."1989-Subsec. (b)(2), (3). Pub. L. 101-239 substituted "865(i)(1)" for "865(h)(1)". 1988-Pub. L. 100-647, §1012(e)(3)(A), substituted "Special rules for determining source" for "Item not specified in section 861 or 862" in section catchline.Subsec. (e)(2). Pub. L. 100-647, §1012(f), substituted "foreign country (or possession of the United States)" for "foreign country" in two places. 1986-Subsec. (b)(1). Pub. L. 99-514, §1212(e), substituted "services" for "transportation or other services". Subsec. (b)(2), (3). Pub. L. 99-514, §1211(b)(1)(A), substituted "inventory property (within the meaning of section 865(h)(1))" for "personal property".Subsec. (c)(2). Pub. L. 99-514, §1212(a), amended par. (2) generally, in subpar. (A) substituting provisions relating to other transportation having United States connections for provisions relating to transportation between United States and any possession, and in subpar. (B) substituting provisions relating to special rule for personal service income for provisions relating to special rule for certain lessors of aircraft.Subsecs. (d), (e). Pub. L. 99-514, §1213(a), added subsecs. (d) and (e).1984-Subsec. (c). Pub. L. 98-369 added subsec. (c).1976-Subsec. (a). Pub. L. 94-455, §1906(b)(13)(A), struck out "or his delegate" after "Secretary".Subsec. (b). Pub. L. 94-455, §§1901(b)(26)(C), (D), 1906(b)(13)(A), struck out "or his delegate" after "Secretary" in introductory provisions, and inserted "or exchange" after "sale" in pars. (2) and (3), and "or exchanged" after "sold" in par. (2) wherever appearing.
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 2017 AMENDMENT Pub. L. 115-97, §14303(b), Dec. 22, 2017, 131 Stat. 2225, provided that: "The amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017."
EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105-34 applicable to remuneration for services performed in taxable years beginning after Dec. 31, 1997, see section 1174(c) of Pub. L. 105-34, set out as a note under section 7701 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT Amendment by Pub. L. 101-239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such amendment relates, see section 7817 of Pub. L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 1211(b)(1)(A) 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.Pub. L. 99-514, title XII, §1212(f), Oct. 22, 1986, 100 Stat. 2539, provided that: "(1) IN GENERAL.-Except as provided in paragraph (2), the amendments made by this section [enacting section 887 of this title and amending this section and sections 861, 872, and 883 of this title] shall apply to taxable years beginning after December 31, 1986."(2) SPECIAL RULE FOR CERTAIN LEASED PROPERTY.-The amendments made by subsections (a) and (d) [amending this section and section 861 of this title] shall not apply to any income attributable to property held by the taxpayer on January 1, 1986, if such property was first leased by the taxpayer before January 1, 1986, in a lease to which section 863(c)(2)(B) or 861(e) of the Internal Revenue Code of 1954 [now 1986] (as in effect on the day before the date of the enactment of this Act [Oct. 22, 1986]) applied."(3) SPECIAL RULE FOR CERTAIN SHIPS LEASED BY THE UNITED STATES NAVY.-"(A) IN GENERAL.-In the case of any property described in subparagraph (B), paragraph (2) shall be applied by substituting '1987' for '1986' each place it appears."(B) PROPERTY TO WHICH PARAGRAPH APPLIES.-Property described in this subparagraph consists of 4 ships which are to be leased by the United States Navy and which are the subject of Internal Revenue Service rulings bearing the following dates and which involved the following amount of financing, respectively:
| "March 5, 1986 | $176,844,000 |
| February 5, 1986 | 64,567,000 |
| April 22, 1986 | 64,598,000 |
| May 22, 1986 | 175,300,000." |
EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98-369, div. A, title I, §124(b), July 18, 1984, 98 Stat. 647, provided that: "The amendment made by subsection (a) [amending this section] shall apply with respect to transportation beginning after the date of the enactment of this Act [July 18, 1984] in taxable years ending after such date."
EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1901(b)(26)(C), (D) of Pub. L. 94-455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as a note under section 2 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION TO TREATY OBLIGATIONS OF UNITED STATESFor nonapplication of amendments by sections 1211(b)(1)(A) and 1212(a) of Pub. L. 99-514 to the extent application of such amendments would be contrary to any treaty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100-647 be treated as if it had been included in the provision of Pub. L. 99-514 to which such amendment relates, see section 1012(aa)(3), (4) of Pub. L. 100-647, set out as a note under section 861 of this title.
QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES; ALLOCATION AND APPOINTMENT; DEFINITIONS; SPECIAL RULES; EFFECTIVE DATES For allocation and apportionment of qualified research and experimental expenditures for purposes of sections 861 to 863 of this title, see section 4009 of Pub. L. 100-647, set out as a note under section 861 of this title.
1-YEAR MODIFICATION IN REGULATIONS PROVIDING FOR ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDITURESFor rule governing allocation under subsec. (b) of this section of amounts allowable as a deduction for qualified research and experimental expenditures during taxable years beginning after Aug. 1, 1986, and on or before Aug. 1, 1987, see section 1216 of Pub. L. 99-514, set out as a note under section 861 of this title.
ALLOCATION UNDER SECTION 861 OF RESEARCH AND EXPERIMENTAL EXPENDITURESFor purposes of subsec. (b) of this section, all amounts allowable as a deduction for qualified research and experimental expenditures are to be allocated to income from sources within the United States and deducted from such income in determining the amount of taxable income from sources within the United States for taxable years beginning after Aug. 13, 1983, and on or before Aug. 1, 1986, see section 126 of Pub. L. 98-369, set out as a note under section 861 of this title.
- Secretary
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- United States person
- The term "United States person" means-(A) a citizen or resident of the United States,(B) a domestic partnership,(C) a domestic corporation,(D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and(E) any trust if-(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and(ii) one or more United States persons have the authority to control all substantial decisions of the trust.
- person
- The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.
- taxpayer
- The term "taxpayer" means any person subject to any internal revenue tax.