Title 26 — Internal Revenue CodeRelease 119-73
§862 Income from sources without the United States
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter N— - Tax Based on Income From Sources Within or Without the United States › Part PART I— - SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN INCOME › § 862
Summary
Treat nine kinds of income as coming from outside the United States. These include interest and dividends from non‑U.S. sources; pay for work done outside the U.S.; rent or royalties from property located abroad or for using foreign patents, copyrights, formulas, goodwill, trademarks, franchises, or similar rights; gains from selling foreign real estate; profit from buying inventory in the U.S. and selling it abroad; underwriting income from non‑U.S. sources; gains from U.S. real property interests when the property is in the Virgin Islands; and payments from a foreign person for guaranteeing that person’s debt (except payments that are from U.S. sources). Expenses, losses, and other deductions that belong to those foreign items can be taken away from them. Costs that clearly match an item are charged to it, and shared costs are split in a fair way. Whatever is left after those deductions is treated as taxable income from outside the United States. If an individual does not itemize deductions, the standard deduction is treated as a shared cost that is not allocable to a specific item.
Full Legal Text
Title 26, §862
Internal Revenue Code — Source: USLM XML via OLRC
(a)The following items of gross income shall be treated as income from sources without the United States:
(1)interest other than that derived from sources within the United States as provided in section 861(a)(1);
(2)dividends other than those derived from sources within the United States as provided in section 861(a)(2);
(3)compensation for labor or personal services performed without the United States;
(4)rentals or royalties from property located without the United States or from any interest in such property, including rentals or royalties for the use of or for the privilege of using without the United States patents, copyrights, secret processes and formulas, good will, trade-marks, trade brands, franchises, and other like properties;
(5)gains, profits, and income from the sale or exchange of real property located without the United States;
(6)gains, profits, and income derived from the purchase of inventory property (within the meaning of section 865(i)(1)) within the United States and its sale or exchange without the United States;
(7)underwriting income other than that derived from sources within the United States as provided in section 861(a)(7);
(8)gains, profits, and income from the disposition of a United States real property interest (as defined in section 897(c)) when the real property is located in the Virgin Islands; and
(9)amounts received, directly or indirectly, from a foreign person for the provision of a guarantee of indebtedness of such person other than amounts which are derived from sources within the United States as provided in section 861(a)(9).
(b)From the items of gross income specified in subsection (a) there shall be deducted the expenses, losses, and other deductions properly apportioned or allocated thereto, and a ratable part of any expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income. The remainder, if any, shall be treated in full as taxable income from sources without the United States. In the case of an individual who does not itemize deductions, an amount equal to the standard deduction shall be considered a deduction which cannot definitely be allocated to some item or class of gross income.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2010—Subsec. (a)(9). Pub. L. 111–240 added par. (9). 1989—Subsec. (a)(6). Pub. L. 101–239 substituted “865(i)(1)” for “865(h)(1)”. 1988—Subsec. (c). Pub. L. 100–647 repealed subsec. (c) which read as follows: “(c) Cross reference.—For source of amounts attributable to certain aircraft and vessels, see section 861(e).” 1986—Subsec. (a)(6). Pub. L. 99–514, § 1211(b)(1)(C), substituted “inventory property (within the meaning of section 865(h)(1))” for “personal property”. Subsec. (b). Pub. L. 99–514, § 104(b)(12), substituted “the standard deduction” for “the zero bracket amount”. 1981—Subsec. (a)(8). Pub. L. 97–34 added par. (8). 1977—Subsec. (b). Pub. L. 95–30 provided that, in the case of an individual who does not itemize deductions, an amount equal to the zero bracket amount shall be considered a deduction which cannot definitely be allocated to some item or class of gross income. 1976—Subsec. (a)(5), (6). Pub. L. 94–455, § 1901(b)(26)(C), inserted “or exchange” after “sale”. Subsec. (a)(7). Pub. L. 94–455, § 1036(b), added par. (7). 1971—Subsec. (c). Pub. L. 92–178 added subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date
of 2010 AmendmentAmendment by Pub. L. 111–240 applicable to guarantees issued after Sept. 27, 2010, see section 2122(d) of Pub. L. 111–240, set out as a note under section 861 of this title.
Effective Date
of 1989 AmendmentAmendment by Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title.
Effective Date
of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date
of 1986 AmendmentAmendment by section 104(b)(12) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 151(a) of Pub. L. 99–514, set out as a note under section 1 of this title. Amendment by section 1211(b)(1)(C) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, except as otherwise provided, see section 1211(c) of Pub. L. 99–514, set out as an
Effective Date
note under section 865 of this title.
Effective Date
of 1981 AmendmentAmendment by Pub. L. 97–34 applicable to dispositions after June 18, 1980, in taxable years ending after such date, see section 831(i) of Pub. L. 97–34, set out as a note under section 897 of this title.
Effective Date
of 1977 AmendmentAmendment by Pub. L. 95–30 applicable to taxable years beginning after Dec. 31, 1976, see section 106(a) of Pub. L. 95–30, set out as a note under section 1 of this title.
Effective Date
of 1976 AmendmentAmendment by section 1036(b) of Pub. L. 94–455 applicable to taxable years beginning after Dec. 31, 1976, see section 1036(c) of Pub. L. 94–455, set out as a note under section 861 of this title. Amendment by section 1901(b)(26)(C) of Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.
Effective Date
of 1971 AmendmentAmendment by Pub. L. 92–178 applicable to taxable years ending after Aug. 15, 1971, but only with respect to leases entered into after such date, see section 314(c) of Pub. L. 92–178, set out as a note under section 861 of this title. Applicability of Certain
Amendments
by Pub. L. 99–514 in Relation to Treaty Obligations of United StatesFor nonapplication of amendment by section 1211(b)(1)(C) of Pub. L. 99–514 to the extent application of such amendment would be contrary to any treaty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amendment relates, see section 1012(aa)(3), (4) of Pub. L. 100–647, set out as a note under section 861 of this title. Qualified Research and Experimental Expenditures; Allocation and Apportionment; Definitions; Special Rules;
Effective Date
sFor allocation and apportionment of qualified research and experimental expenditures for purposes of sections 861 to 863 of this title, see section 4009 of Pub. L. 100–647, set out as a note under section 861 of this title. 1-Year Modification in
Regulations
Providing for Allocation of Research and Experimental ExpendituresFor rule governing allocation under subsec. (b) of this section of amounts allowable as a deduction for qualified research and experimental expenditures during taxable years beginning after Aug. 1, 1986, and on or before Aug. 1, 1987, see section 1216 of Pub. L. 99–514, set out as a note under section 861 of this title. Allocation Under section 861 of Research and Experimental ExpendituresFor purposes of subsec. (b) of this section, all amounts allowable as a deduction for qualified research and experimental expenditures are to be allocated to income from sources within the United States and deducted from such income in determining the amount of taxable income from sources within the United States for taxable years beginning after Aug. 13, 1983, and on or before Aug. 1, 1986, see section 126 of Pub. L. 98–369, set out as a note under section 861 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 862
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73