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TITLE 26-INTERNAL REVENUE CODE (A) Section 809(d)(4) (operations loss de- duction). (B) Section 809(d)(5) (certain nonpartici- pating contracts). (C) Section 809(d)(6) (group life, accident, and health insurance). (D) Section 809(d)(10) (small business de- duction). (E) Section 817(b) (gain on property held on December 31, 1958, and certain substitut- ed property acquired after 1958). (F) Section 832(c)(5) (certain capital losses). (4) The items referred to in- (A) section 809(c)(1) (relating to gross amount of premiums and other consider- ations), (B) section 809(c)(2) (relating to net de- crease in reserves), (C) section 809(d)(2) (relating to net in- crease in reserves), and (D) section 832(b)(4) (relating to premi- ums earned on insurance contracts) shall be taken into account only to the extent they are in respect of any reinsurance or the issuing of any insurance or annuity contract described in subsection (a)(1). (5) All items of income, expenses, losses, and deductions (other than those taken into account under paragraph (4)) shall be proper- ly allocated or apportioned under regulations prescribed by the Secretary. (Added Pub. L. 87-834, 12(a), Oct. 16, 1962, 76 Stat. 1008, and amended Pub. L. 89-809, title I, § 104(m)(2), Nov. 13, 1966, 80 Stat. 1563; Pub. L. 94-455, title XIX, § 1906(b)(13(A), Oct. 4, 1976, 90 Stat. 1834.) AMENDMENTS 1976-Subsec. (b)(5). Pub. L. 94-455 struck out "or his delegate" following "Secretary". 1966-Subsec. (b)(3)(F). Pub. L. 89-809 substituted "832(c)(5)" for "832(b)(5)". EFrcTivE 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. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 952, 956, 957, of this title. § 954. Foreign base company income (a) Foreign base company income For purposes of section 952(a)(2), the term "foreign base company income" means for any taxable year the sum of- (1) the foreign personal holding company income for the taxable year (determined under subsection (c) and reduced as provided in subsection (b)(5)), (2) the foreign base company sales income for the taxable year (determined under sub- section (d) and reduced as provided in subsec- tion (b)(5)), (3) the foreign base company services income for the taxable year (determined under subsection (e) and reduced as provided in subsection (b)(5)), and (4) the foreign base company shipping income for the taxable year (determined under subsection (f) and reduced as provided in subsection (b)(5)). (b) Exclusion and special rules [(1) Repealed. Pub. L. 94-12, title VI, § 602(c)(1), Mar. 29, 1975, 89 Stat. 58] (2) Exclusion for reinvested shipping income For purposes of subsection (a), foreign base company income does not include foreign base company shipping income to the extent that the amount of such income does not exceed the increase for the taxable year in qualified investments in foreign base compa- ny shipping operations of the controlled for- eign corporation (as determined under subsec- tion (g)). (3) Special rule where foreign base company income is less than 10 percent or more than 70 percent of gross income For purposes of subsection (a)- (A) If the foreign base company income (determined without regard to paragraphs (2) and (5)) is less than 10 percent of gross income, no part of the gross income of the taxable year shall be treated as foreign base company income. (B) If the foreign base company income (determined without regard to paragraphs (2) and (5)) exceeds 70 percent of gross income, the entire gross income of the tax- able year shall, subject to the provisions of paragraphs (2). (4), and (5), be treated as foreign base company income. (4) Exception for foreign corporations not availed of to reduce taxes For purposes of subsection (a), foreign base company income does not include any item of income received by a controlled foreign corpo- ration if it is established to the satisfaction of the Secretary that neither- (A) the creation or organization of such controlled foreign corporation under the laws of the foreign country in which it is in- corporated (or, in the case of a controlled foreign corporation which is an acquired corporation, the acquisition of such corpo- ration created or organized under the laws of the foreign country in which it is incor- porated), nor (B) the effecting of the transaction giving rise to such income through the controlled foreign corporation, has as one of its significant purposes a sub- stantial reduction of income, war profits, or excess profits or similar taxes. (5) Deductions to be taken into account For purposes of subsection (a), the foreign personal holding company income, the for- eign base company sales income, the foreign base company services income, and the for- eign base company shipping income shall be reduced, under regulations prescribed by the Secretary so as to take into account deduc- tions (including taxes) properly allocable to such income. (6) Special rules for foreign base company shipping income Income of a corporation which is a foreign base company shipping income under para- § 954 Page 604