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TITLE 26-INTERNAL REVENUE CODE EFFECTIVE DATE OF 1966 AMENDMENT Amendment by Pub. L. 89-809 applicable with re- spect to taxable years beginning after Dec. 31, 1966, see section 104(n) of Pub. L. 89-809, set out as an Ef- fective Date of 1966 Amendment note under section 11 of this title. CROSS REFERENCES Consent dividends, nonresident aliens and foreign corporations, see section 565 of this title. Corporate organizations, foreign corporations, see section 367 of this title. Credit for corporate stockholder in foreign corpora- tion, see section 902 of this title. Distributions by corporations, source of gain when dispositions of certain stock, see section 306 of this title. Dividends received from certain foreign corpora- tions, see section 245 of this title. Income from sources within the United States, see section 861 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 306, 819, 819A, 842, 864, 871, 891. 906, 1442, 1563, 6154 of this title. § 882. Tax on income of foreign corporations connect- ed with United States business (a) Normal tax and surtax (1) Imposition of tax A foreign corporation engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 11 or 1201(a) on its taxable income which is effectively connected with the con- duct of a trade or business within the United States. (2) Determination of taxable income In determining taxable income for purposes of paragraph (1), gross income includes only gross income which is effectively connected with the conduct of a trade or business within the United States. (b) Gross income In the case of a foreign corporation, gross income includes only- (1) gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and (2) gross income which is effectively con- nected with the conduct of a trade or business within the United States. (c) Allowance of deductions and credits (1) Allocation of deductions (A) General rule In the case of a foreign corporation, the deductions shall be allowed only for pur- poses of subsection (a) and (except as pro- vided by subparagraph (B)) only if and to the extent that they are connected with income which is effectively connected with the conduct of a trade or business within the United States; and the proper appor- tionment and allocation of the deductions for this purpose shall be determined as pro- vided in regulations prescribed by the Sec- retary. (B) Charitable contributions The deduction for charitable contribu- tions and gifts provided by section 170 shall be allowed whether or not connected with income which is effectively connected with the conduct of a trade or business within the United States. (2) Deductions and credits allowed only if return filed A foreign corporation shall receive the benefit of the deductions and credits allowed to it in this subtitle only by filing or causing to be filed with the Secretary a true and accu- rate return, in the manner prescribed in sub. title F, including therein all the information which the Secretary may deem necessary for the calculation of such deductions and cred- its. The preceding sentence shall not apply for purposes of the tax imposed by section 541 (relating to personal holding company tax), and shall not be construed to deny the credit provided by section 32 for tax withheld at source or the credit provided by section 39 for certain uses of gasoline and lubricating oil. (3) Foreign tax credit Except as provided by section 906, foreign corporations shall not be allowed the credit against the tax for taxes of foreign countries and possessions of the United States allowed by section 901. (4) Cross reference For rule that certain foreign taxes are not to be taken into account in determining deduction or credit, see sec. tion 906(b)(1). (d) Election to treat real property income as income connected with United States business (1) In general A foreign corporation which during the tax- able year derives any income- (A) from real property located in the United States, or from any interest in such real property, including (i) gains from the sale or exchange of real property or an In- terest therein, (ii) rents or royalties from mines, wells, or other natural deposits, and (iii) gitins described in section 631(b) or (c), and (B) which, but for this subsection, would not be treated as income effectively con- nected with the conduct of a trade or busi- ness within the United States, may elect for such taxable year to treat all such income as income which is effectively connected with the conduct of a trade or busi- ness within the United States. In such case, such income shall be taxable as provided in subsection (a)(1) whether or not such corpo- ration is engaged in trade or business within the United States during the taxable year. An election under this paragraph for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked with the consent of the Secretary with re- spect to any taxable year. (2) Election after revocation, etc. Paragraphs (2) and (3) of section 871(d) shall apply in respect of elections under this subsection in the same manner and to the Page 570 § 882