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TITLE 26-INTERNAL REVENUE CODE (B) Other taxpayers In the case of a taxpayer other than a taxpayer described in subparagraph (A), taxable income from sources without the United States shall include gain from the sale or exchange of capital assets only to the extent of foreign source capital gain net income. (3) Definitions For purposes of this subsection- (A) Foreign source capital gain net income The term "foreign source capital gain net income" means the lesser of- (I) capital gain net income from sources without the United States, or (ii) capital gain net income. (B) Foreign source net capital gain The term "foreign source net capital gain" means the lesser of- (I) net capital gain from sources without the United States, or (ii) net capital gain. (C) Exception for gain from the sale of certain personal property For purposes of this paragraph, there shall be included as gain from sources within the United States any gain from sources without the United States from the sale or exchange of a capital asset which is personal property which- (i) in the case of an individual, is sold or exchanged outside of the country (or pos- session) of the individual's residence, (ii) in the case of a corporation, is stock in a second corporation sold or exchanged other than in a country (or possession) in which such second corporation derived more than 50 percent of its gross income for the 3-year period ending with the close of such %.econd corporation's taxable year immediately preceding the year during which the sale or exchange oc- curred, or (iii) in the case of any taxpayer, is per- sonal property (other than stock In a cor- poration) sold or exchanged other than in a country (or possession) in which such property is used in a trade or business of the taxpayer or in which such taxpayer derived more than 50 percent of its gross income for the 3-year period ending with the close of its taxable year immediately preceding the year during which the sale or exchange occurred, unless such gain is subject to an income, war profits, or excess profits tax of a for- eign country or possession of the United States, and the rate of tax applicable to such gain is 10 percent or more of the gain from the sale or exchange (computed under this chapter). (D) Section 1231 gains The term "gain from the sale or exchange of capital assets" includes any gain so treat- ed under section 1231. (4) Coordination with section 936 For purposes of subsection (a), in the case of a corporation, the taxable income shall not include any portion thereof taken into ac- count for purposes of the credit (if any) al- lowed by section 936. (c) Carryback and carryover of excess tax paid Any amount by which all taxes paid or ac- crued to foreign countries or possessions of the United States for any taxable year for which the taxpayer chooses to have the benefits of this subpart exceed the limitation under sub- section (a) shall be deemed taxes paid or ac- crued to foreign countries or possessions of the United States in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeed- ing taxable years, in that order and to the extent not deemed taxes paid or accrued in a prior taxable year, in the amount by which the limitation under subsection (a) for such preced- ing or succeeding taxable year exceeds the sum of the taxes paid or accrued to foreign coun- tries or possessions of the United States for such preceding or succeeding taxable year and the amount of the taxes for any taxable year earlier than the current taxable year which shall be deemed to have been paid or accrued in such preceding or subsequent taxable year (whether or not the taxpayer chooses to have the benefits of this subpart with respect to such earlier taxable year). Such amount deemed paid or accrued in any year may be availed of only as a tax credit and not as a de- duction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions of the United States. (d) Application of section in case of certain interest income and dividends from a DISC or former DISC (1) In general The provisions of subsections (a), (b), and (c) shall be applied separately with respect to each of the following items of income: (A) the interest income described in para- graph (2), (B) dividends from a DISC or former DISC (as defined in section 992(a)) to the extent such dividends are treated as income from sources without the United States, and (C) income other than the interest income described in paragraph (2) and dividends de- scribed in subparagraph (B). (2) Interest income to which applicable For purposes of this subsection, the interest income described in this paragraph is interest other than interest- (A) derived from any transaction which is directly related to the active conduct by the taxpayer of a trade or business in a foreign country or a possession of the United States, (B) derived in the conduct by the taxpay- er of a banking, financing, or similar busi- ness, (C) received from a corporation In which the taxpayer (or one or more includible cor- porations in an affiliated group, as defined in section 1504, of which the taxpayer is a member) owns, directly or indirectly, at least 10 percent of the voting stock, or (D) received on obligations acquired as a result of the disposition of a trade or busl- 71-999 0 - '7 - 39 (Vol. 7) Page 581 § 904