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—
(1) from services rendered partly within and partly without the United States,
(2) from the sale or exchange of inventory property (within the meaning of section 865(i)(1)) produced (in whole or in part) by the taxpayer within and sold or exchanged without the United States, or produced (in whole or in part) by the taxpayer without and sold or exchanged within the United States, or
(3) derived from the purchase of inventory property (within the meaning of section 865(i)(1)) within a possession of the United States and its sale or exchange within the United States,
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—
(i) is not described in paragraph (1), and
(ii) begins or ends in the United States,
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—
(i) begins in the United States and ends in a possession of the United States, or
(ii) begins in a possession of the United States and ends in the United States.
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—
(A) the use (or hiring or leasing for use) of a vessel or aircraft, or
(B) the performance of services directly related to the use of a vessel or aircraft.
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—
(A) if derived by a United States person, shall be sourced in the United States, and
(B) if derived by a person other than a United States person, shall be sourced outside the United States.
For purposes of paragraph (1)—
The term "space or ocean activity" means—
(i) any activity conducted in space, and
(ii) any activity conducted on or under water not within the jurisdiction (as recognized by the United States) of a foreign country, possession of the United States, or the United States.
Such term includes any activity conducted in Antarctica.
The term "space or ocean activity" shall not include—
(i) any activity giving rise to transportation income (as defined in section 863(c)),
(ii) any activity giving rise to international communications income (as defined in subsection (e)(2)), and
(iii) any activity with respect to mines, oil and gas wells, or other natural deposits to the extent within the United States or any foreign country or possession of the United States (as defined in section 638).
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.
(Aug. 16, 1954, ch. 736, 68A Stat. 277; Pub. L. 94–455, title XIX, §§1901(b)(26)(C), (D), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1798, 1799, 1834; Pub. L. 98–369, div. A, title I, §124(a), July 18, 1984, 98 Stat. 646; Pub. L. 99–514, title XII, §§1211(b)(1)(A), 1212(a), (e), 1213(a), Oct. 22, 1986, 100 Stat. 2536, 2539, 2540; Pub. L. 100–647, title I, §1012(e)(3)(A), (f), Nov. 10, 1988, 102 Stat. 3500; Pub. L. 101–239, title VII, §7811(i)(2), Dec. 19, 1989, 103 Stat. 2409; Pub. L. 105–34, title XI, §1174(a)(2), Aug. 5, 1997, 111 Stat. 989; Pub. L. 115–97, title I, §14303(a), Dec. 22, 2017, 131 Stat. 2225.)
2017—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.
Pub. L. 115–97, title I, §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."
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.
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.
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.
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)
"(2)
"(3)
"(A)
"(B)
| "March 5, 1986 | $176,844,000 |
| February 5, 1986 | 64,567,000 |
| April 22, 1986 | 64,598,000 |
| May 22, 1986 | 175,300,000." |
Pub. L. 99–514, title XII, §1213(b), Oct. 22, 1986, 100 Stat. 2541, provided that: "The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1986."
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."
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.
For 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.
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.
For 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.
For 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.
| § 1.863-0 | Table of contents |
| § 1.863-0A | Table of contents |
| § 1.863-1 | Allocation of gross income under section 863(a) |
| § 1.863-2 | Allocation and apportionment of taxable income |
| § 1.863-3 | Allocation and apportionment of income from certain sales of inventory |
| § 1.863-3A | Income from the sale of personal property derived partly from within and partly from without the United States |
| § 1.863-3AT | Income from the sale of personal property derived partly from within and partly from without the United States (temporary regulations) |
| § 1.863-4 | Certain transportation services |
| § 1.863-6 | Income from sources within a foreign country |
| § 1.863-7 | Allocation of income attributable to certain notional principal contracts under section 863(a) |
| § 1.863-8 | Source of income derived from space and ocean activity under section 863(d) |
| § 1.863-9 | Source of income derived from communications activity under section 863(a), (d), and (e) |
| § 1.863-10 | Source of income from a qualified fails charge |
The Regulations cited above were determined based on programmatic database analysis using data provided by the Government Publishing Office. TouchTax attempts to hide unrelated regulation provisions. Due to limited GPO data, however, certain unrelated regulations may appear in some instances.
The preliminary Code is a preliminary release of the Internal Revenue Code of 1986 (the "Code") by the Office of the Law Revision Counsel and is subject to further revision before it is released again as a final version. The source of the preliminary Code used in TouchTax is available here: https://uscode.house.gov/download/download.shtml. The Code is a consolidation and codification by subject matter of the general and permanent laws of the U.S. prepared by the Office of the Law Revision Counsel of the U.S. House of Representatives. The Treasury Regulations are a codification of the general and permanent rules published in the Federal Register by the departments and agencies of the federal government. The version of the Treasury Regulations available within TouchTax is part of the Electronic Code of Federal Regulations which is not an official legal edition of the Code of Federal Regulations but is an editorial compilation of CFR material and Federal Register amendments produced by the National Archives and Records Administration's Office of the Federal Register (OFR) and the Government Publishing Office. The source of the CFR used in TouchTax is available here: https://www.govinfo.gov/bulkdata/ECFR/title-26. Those using TouchTax for legal research should verify their results against the printed versions of the Code and Treasury Regulations. TouchTax is copyright 2024 by Com-Lab (Mobile). Learn more at http://touchtax.edrich.de.