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TITLE 26-INTERNAL REVENUE CODE (B) such compensation does not exceed $3,000 in the aggregate, and (C) the compensation is for labor or ser- vices performed as an employee of or under a contract with- (I) a nonresident alien, foreign partner- ship, or foreign corporation, not engaged in trade or business within the United States, or (ii) an individual who is a citizen or resi- dent of the United States, a domestic partnership, or a domestic corporation, if such labor or services are performed for an office or place of business maintained in a foreign country or in a possession of the United States by such individual, partnership, or corporation. (4) Rentals and royalties Rentals or royalties from property located in the United States or from any interest in such property, including rentals or royalties for the use of or for the privilege of using in the United States patents, copyrights, secret processes and formulas, good will, trade- marks, trade brands, franchises, and other like property. (5) Sale or exchange of real property Gains, profits, and income from the sale or exchange of real property located in the United States. (6) Sale or exchange of personal property Gains, profits, and income derived from the purchase of personal property without the United States (other than within a possession of the United States) and its sale or exchange within the United States. (7) Amounts received as underwriting income (as defined in section 832(b)(3)) de- rived from the insurance of United States risks (as defined in section 953(a)). (b) Taxable income from sources within United States From the items of gross income specified in subsection (a) as being income from sources within the United States there shall be deduct- ed the expenses, losses, and other deductions properly 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. The re- mainder, if any, shall be included in full as tax- able income from sources within the United States. (c) Interest on deposits, etc. For purposes of subsection (a)(1)(A), the amounts described in this subsection are- (1) deposits with persons carrying on the banking business, (2) deposits or withdrawable accounts with savings institutions chartered and supervised as savings and loan or similar associations under Federal or State law, but only to the extent that amounts paid or credited on such deposits or accounts are deductible under sec- tion 591 (determined without regard to sec- tion 265) in computing the taxable income of such institutions, and (3) amounts held by an insurance company under an agreement to pay interest thereon. (d) Special rules for application of paragraphs (1)(B), (1)(C), (1)(D), and (2)(B) of subsection (a) (I) New entities For purposes of paragraphs (1)(B), 'j)(C), (1)(D), and (2)(B) of subsection (a), if the resi- dent alien individual, domestic corporation, or foreign corporation, as the case may be, has no gross income from any source for the 3- year period (or part thereof) specified, the 20 percent test or the 50 percent test, as the case may be, shall be applied with respect to the taxable year of the payor in which payment of the interest or dividends, as the case may be, is made. (2) Transition rule For purposes of paragraphs (1)(C), (1)(D), and (2)(B) of subsection (a), the gross income of the foreign corporation for any period before the first taxable year beginning after December 31, 1966, which is effectively con- nected with the conduct of a trade or business within the United States is an amount equal to the gross income for such period from sources within the United States. (e) Election to treat income from certain aircraft and vessels as income from sources within the United States. (1) In general For purposes of subsection (a) and section 862(a), if a taxpayer owning an aircraft or vessel which is section 38 property (or would be section 38 property but for section 48(a)(5)) leases such aircraft or vessel to a United States person, other than a member of the same controlled group of corporations (as defined in section 1563) as the taxpayer, and if such aircraft or vessel is manufactured or constructed in the United States, the taxpay- er may elect, for any taxable year ending after the commencement of such lease, to treat all amounts includible in gross income with respect to such aircraft or vessel (wheth- er during or after the period of any such lease), including gain from sale, exchange, or other disposition of such aircraft or vessel, as income from sources within the United States. (2) Effect of election An election under paragraph (1) made with respect to any aircraft or vessel shall apply to the taxable year for which made and to all subsequent taxable years. Such election may not be revoked except with the consent of the Secretary. (3) Manner and time of election and revocation An election under paragraph (1), and any revocation of such election, shall be made in such manner and at such time as the Secre- tary prescribes by regulations. (4) Certain transfers involving carryover basis If the taxpayer transfers or distributes an aircraft or vessel which is subject to an elec- tion under paragraph (1) and the basis of such aircraft or vessel in the hands of the transferee or distributee is determined by ref- erence to its basis in the hands of the trans- feror or distributor, the transferee or distri- butee shall, for purposes of paragraph (1), be § 861 Page 556