Page 602

TITLE 26-INTERNAL REVENUE CODE the part of such year during which the corpo- ration is a controlled foreign corporation bears to the entire year. (b) United States shareholder defined For purposes of this subpart, the term "United States shareholder" means, with re- spect to any foreign corporation, a United States person (as defined in section 957(d)) who owns (within the meaning of section 958(a)), or is considered as owning by applying the rules of ownership of section 958(b), 10 percent or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation. (c) Coordination with election of a foreign invest- ment company to distribute income A United States shareholder who, for his tax- able year, is a qualified shareholder (within the meaning of section 1247(c)) of a foreign invest- ment company with respect to which an elec- tion under section 1247 is in effect shall not be required to include in gross income, for such taxable year, any amount under subsection (a) with respect to such company. (d) Coordination with foreign personal holding com- pany provisions A United States shareholder who, for his tax- able year, is subject to tax under section 551(b) (relating to foreign personal holding company income included in gross income of United States shareholders) on income of a controlled foreign corporation shall not be required to in- clude in gross income, for such taxable year, any amount under subsection (a) with respect to such company. (Added Pub. L. 87-834, § 12(a), Oct. 16, 1962, 76 Stat. 1006, and amended Pub. L. 94-12, title VI, § 602(a)(3)(B), (c)(3), (4), (d)(2), Mar. 29, 1975, 89 Stat. 58, 62; Pub. L. 94-455, title XIX, § 1901(a)(119), Oct. 4, 1976, 90 Stat. 1784.) REFERENCES IN TEXT The Tax Reduction Act of 1975, referred to in subsec. (a)(1)(A)(ii), is Pub. L. 94-12, Mar. 29, 1975, 89 Stat. 26, which was enacted Mar. 29, 1975. For com- plete classification of this Act to the Code, see Short Title of 1975 Amendment note set out under section 1 of this title and Tables volume. AMENDMENTS 1976-Subsec. (a)(1). Pub. L. 94-455 struck out "be- ginning after December 31, 1962" following "during any taxable year". 1975-Subsec. (a)(1)(A)(i). Pub. L. 94-12, § 602(a)(3)(B), struck out "except as provided in sec. tion 963," preceding "his pro rata share". Subsec. (a)(1)(A)(ii). Pub. L. 94-12. § 602(c)(3), substi- tuted "(determined under section 955(a)(3) as in effect before the enactment of the Tax Reduction Act of 1975)" for "(determined under section 955(a)(3))". Subsec. (a)(1)(A)(ill). Pub. L. 94-12, § 602(d)(2)(A), added cl. (iii). Subsec. (a)(3). Pub. L. 94-12, § 602(c)(4), (d)(2)(B), substituted "paragraph (i)(A)(iii)" for "paragraph (1)(A)(ii)" and "foreign base company shipping oper- ations" for "less developed countries". EFFECTIVE DATE OF 1975 AMENDMENT Amendment by Pub. L. 94-12 applicable to taxable years of foreign corporations beginning after Dec. 31, 1975, and to taxable years of United States sharehold- ers (within the meaning of subsec. (b) of this section) within which or with which such taxable years of such foreign corporations end, see section 602(f) of Pub. L. 94-12, set out as an Effective Date of 1975 Amendment note under section 955 of this title. EFFECTIVE DATE Section 12(c) of Pub. L. 87-834 provided that: "The amendments made by this section [adding sections 951 to 964 and 970 to 972 of this title, and amending sec- tions 901, 904 and 1016 of this title] shall apply with respect to taxable years of foreign corporations begin- ning after December 31, 1962, and to taxable year of United States shareholders within which or with which such taxable years of such foreign corporations end." ECONOMICALLY LESS DEvELOPED CouNTRIEs Designation of certain foreign countries as economi- cally less developed countries, see Ex. Ord. No. 11071, Dec. 27, 1962, 27 P.R. 12875, set out as a note under section 955 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 679, 851. 952, 955. 956. 958, 959, 960, 961, 962, 970, 993, 999, 1246, 1248 of this title. § 952. Subpart F income defined (a) In general For purposes of this subpart, the term "sub- part F income" means, in the case of any con- trolled foreign corporation, the sum of- (1) the income derived from the insurance of United States risks (as determined under section 953), and (2) the foreign base company income (as de- termined under section 954). (3) an amount equal to the product of- (A) the income of such corporation other than income which- (i) is attributable to earnngs and profits of the foreign corporation included in the gross income of a United States person under section 951 (other than by reason of this paragraph), or (ii) is described in subsection (b), multi- plied by (B) the international boycott factor (as determined under section 999), and (4) the sum of the amounts of any illegal bribes, kickbacks, or other payments (within the meaning of section 162(c)) paid by or on behalf of the corporation during the taxable year ef the corporation directly or indirectly to an official, employee, or agent in fact of a government. (b) Exclusion of United States income In the case of a controlled foreign corpora- tion, subpart F income does not include any item of income from sources within the United States which is effectively connected with the conduct by such corporaiton of a trade or busi- ness within the United States unless such item is exempt from taxation (or is subject to a re- duced rate of tax) pursuant to a treaty obliga- tion of the United States. (c) Limitation For purposes of subsection (a), the subpart F income of any controlled foreign corporation for any taxable year shall not exceed the earn- ings and profits of such corporation for such year reduced by the amount (if any) by which- (1) an amount equal to- Page 602 § 952