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TITLE 26-INTERNAL REVENUE CODE (d) Deductions (1) General rule Except as otherwise provided in this subsec- tion and subsection (e), in the case of a citizen of the United States entitled to the benefits of this section the deductions shall be allowed only if and to the extent that they are con- nected with income from sources within the United States; and the proper apportionment and allocation of the deductions with respect to sources of income within and without the United States shall be determined as provided in part I, under regulations prescribed by the Secretary. (2) Exceptions The following deductions shall be allowed whether or not they are connected with income from sources within the United States: (A) The deduction, for losses not connect- ed with the trade or business if incurred in transactions entered into for profit, allowed by section 165(c)(2), but only if the profit, if such transaction had resulted in a profit, would be taxable under this subtitle. (B) The deduction, for losses of property not connected with the trade or business if arising from certain casualties or theft, al- lowed by section 165(c)(3), but only if the loss is of property within the United States. (C) The deduction for charitable contribu- tions and gifts allowed by section 170. (3) Deduction disallowed For disallowance of standard deduction, see section 142(b)(2). (e) Deduction for personal exemption A citizen of the United States entitled to the benefits of this section shall be allowed a de- duction for only one exemption under section 151. (f) Allowance of deductions and credits A citizen of the United States entitled to the benefits of this section shall receive the benefit of the deductions and credits allowed to them in this subtitle only by filing or causing to be filed with the Secretary a true and accurate return of their total income received from all sources in the United States, in the manner prescribed in subtitle F, including therein all the Information which the Secretary may deem necessary for the calculation of such deduc- tions and credits. (g) Foreign tax credit Persons entitled to the benefits of this section shall not be allowed the credits against the tax for taxes of foreign countries and possessions of the United States allowed by section 901. (h) Employees of the United States For purposes of this section, amounts paid for services performed by a citizen of the United States as an employee of the United States or any agency thereof shall be deemed to be de- rived from sources within the United States. (Aug. 16, 1954, ch. 736, 68A Stat. 291; Nov. 13, 1966, Pub. L. 89-809, title I. § 107(a), 80 Stat. 1571; Dec. 10, 1971, Pub. L. 92-178, title V, § 502(d), 85 Stat. 550; Oct. 31, 1972, Pub. L. 92- 606, § l(f)(1), 86 Stat. 1497; Oct. 4, 1976, Pub. L. 94-455, title X, § 1051(c), title XIX, §§1901(a)(117), 1906(b)(13)(A), 90 Stat. 1645, 1784, 1834.) AMENDMENTS 1976-Subsec. (a). Pub. L. 94-455, § 1O51(c)(1), struck out all references to domestic corporations and made subsection applicable only to individual citizens. Subsec. (c). Pub. L. 94-455, § 1051(c)(2), substituted "Commonwealth of Puerto Rico, the Virgin Islands of the United States, or Guam" for "Virgin Islands of the United States, and such term when used with respect to citizens of the United States does not include Puerto Rico or Guam" following "does not include the". Subsec. (d)(1). Pub. L. 94-455, §§ 1051(c)(3), 1906(b)(13)(A), substitued "a citizen of the United States" for "persons" following "in the case of" and struck out "or his delegate" following "Secretary". Subsec. (f). Pub. L. 94-455, §§ 1051(c)(3), 1906(b)(13)(A), substituted "A citizen of the United States" for "Persons" following "Allowance of deduc- tions and credits" and struck out in two places "or his delegate" following "Secretary". Subsec. (h. Pub. L. 94-455, § 1901(a)(117), struck out subsec. (h) relating to the status of a citizen of the United States who has been interned by the enemy. Former subsec. (I) redesignated subsee. (h). Subsec. (I). Pub. L. 94-455, § 1901(a)(117), redesignat- ed former subsec. (i) as (h). 1972-Subsec. (c). Pub. L. 92-606 substituted "Puerto Rico or Guam" for "Puerto Rico". 1971-Subsec. (a). Pub. L. 92-178 provided for non- application of section in the case of a corporation for a taxable year for which it is a DISC or in which it owns at any time stock in a DISC or former DISC. 1966-Subsec d). Pub. L. 89-809 made applicable to United States citizens and domestic corporations en- gaged in trade or business in possessions, who qualify for the special tax treatment of income qualifying for the exclusion relating to income from United States possessions, provisions which allow deductions to non- resident aliens or foreign corporations engaged in trade or business in the United States by allowing de- ductions only where they are allocable to income ef- fectively connected with the trade or business in the United States and by spelling out the exceptions al- lowing deductions whether or not connected with income from sources within the United States in the case of losses not connected with the trade or business but incurred in transactions entered into for profit, ca- sualty losses, and charitable contributions. EFFECTIVE DATE OF 1976 AMENDMENT Amendment of subsecs. (a), (c), (d)(1), by section 1051(c) of Pub. L. 94-455 applicable with respect to taxable years beginning after Dec. 31, 1975, with cer- tain exceptions, see section 1051(i) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 33 of this title. Amendment of subsecs. (h), (i) by section 1901(a)(117) of Pub. L. 94-455 applicable with respect to taxable years beginning after Dec. 31, 1976, see sec- tion 1901(d) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 2 of this title. EFFECTIVE DATE OF 1972 AMENDMENT Amendment by Pub. L. 92-606 applicable with re- spect to taxable years beginning after Dec. 31, 1972, see section 2 of Pub. L. 92-606, set out in part as an Ef- fective Date note under section 935 of this title. EFFECTIVE DATE OF 1971 AMEMDMENT Amendment of subsec. (a) by Pub. L. 92-178 applica- ble with respect to taxable years ending after Dec. 31, 1971, except that a corporation may not be a DISC for any taxable year beginning before Jan. 1. 1972, see sec- tion 507 of Pub. L. 92-178, set out as an Effective Date note under section 991 of this title. Page 595