Title 26 — Internal Revenue CodeRelease 119-73
§882 Tax on income of foreign corporations connected with United States business
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 II— - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS › Subpart Subpart B— - Foreign Corporations › § 882
Summary
Foreign corporations that do business in the United States must pay U.S. tax on the income that is connected to that U.S. business. When figuring taxable income, only the money earned that is tied to the U.S. business is counted. Special rules cover gains or losses from selling U.S. real estate. Deductions are allowed only if they relate to that U.S. business income, except charitable gifts are allowed even if not connected. To get deductions and credits, the foreign company must file a true and complete U.S. tax return with any information the IRS needs. Normally foreign tax credits are not allowed except as another rule provides, and some foreign taxes are ignored when figuring deductions or credits. If a foreign company gets income from U.S. real property (sales, rents, royalties, or certain gains) and that income would not otherwise count as connected to U.S. business, it can elect to treat that income as connected under the same election rules used elsewhere in the tax law. A corporation formed in a U.S. possession that does banking must treat certain U.S. interest as connected income and tax it, even if it has no other U.S. business. If a foreign company has no U.S. office but has an agent in the U.S., that agent must file the return.
Full Legal Text
Title 26, §882
Internal Revenue Code — Source: USLM XML via OLRC
(a)(1)A foreign corporation engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 11, 55, or 59A,11 So in original. The comma probably should not appear. on its taxable income which is effectively connected with the conduct of a trade or business within the United States.
(2)In determining taxable income for purposes of paragraph (1), gross income includes only gross income which is effectively connected with the conduct of a trade or business within the United States.
(3)For special tax treatment of gain or loss from the disposition by a foreign corporation of a United States real property interest, see section 897.
(b)In the case of a foreign corporation, except where the context clearly indicates otherwise, gross income includes only—
(1)gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and
(2)gross income which is effectively connected with the conduct of a trade or business within the United States.
(c)(1)(A)In the case of a foreign corporation, the deductions shall be allowed only for purposes of subsection (a) and (except as provided by subparagraph (B)) only if and to the extent that they are connected with income which is effectively connected with the conduct of a trade or business within the United States; and the proper apportionment and allocation of the deductions for this purpose shall be determined as provided in regulations prescribed by the Secretary.
(B)The deduction for charitable contributions and gifts provided by section 170 shall be allowed whether or not connected with income which is effectively connected with the conduct of a trade or business within the United States.
(2)A foreign corporation shall receive the benefit of the deductions and credits allowed to it in this subtitle only by filing or causing to be filed with the Secretary a true and accurate return, in the manner prescribed in subtitle F, including therein all the information which the Secretary may deem necessary for the calculation of such deductions and credits. The preceding sentence shall not apply for purposes of the tax imposed by section 541 (relating to personal holding company tax), and shall not be construed to deny the credit provided by section 33 for tax withheld at source or the credit provided by section 34 for certain uses of gasoline.
(3)Except as provided by section 906, foreign corporations shall not be allowed the credit against the tax for taxes of foreign countries and possessions of the United States allowed by section 901.
(4)For rule that certain foreign taxes are not to be taken into account in determining deduction or credit, see section 906(b)(1).
(d)(1)A foreign corporation which during the taxable year derives any income—
(A)from real property located in the United States, or from any interest in such real property, including (i) gains from the sale or exchange of real property or an interest therein, (ii) rents or royalties from mines, wells, or other natural deposits, and (iii) gains described in section 631(b) or (c), and
(B)which, but for this subsection, would not be treated as income effectively connected with the conduct of a trade or business within the United States,
(2)Paragraphs (2) and (3) of section 871(d) shall apply in respect of elections under this subsection in the same manner and to the same extent as they apply in respect of elections under section 871(d).
(e)In the case of a corporation created or organized in, or under the law of, a possession of the United States which is carrying on the banking business in a possession of the United States, interest on obligations of the United States which is not portfolio interest (as defined in section 881(c)(2)) shall—
(1)for purposes of this subpart, be treated as income which is effectively connected with the conduct of a trade or business within the United States, and
(2)shall be taxable as provided in subsection (a)(1) whether or not such corporation is engaged in trade or business within the United States during the taxable year.
(f)If any foreign corporation has no office or place of business in the United States but has an agent in the United States, the return required under section 6012 shall be made by the agent.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2022—Subsec. (a)(1). Pub. L. 117–169 inserted “, 55,” after “section 11”. 2017—Subsec. (a)(1). Pub. L. 115–97, § 14401(d)(2), which directed insertion of “or 59A,” after “section 11,”, was executed by making the insertion after “section 11” to reflect the probable intent of Congress and the amendment by Pub. L. 115–97, § 12001(b)(14). See below. Pub. L. 115–97, § 13001(b)(2)(L), struck out “or 1201(a)” before “on its taxable income”. Pub. L. 115–97, § 12001(b)(14), struck out “, 55,” after “section 11”. 2014—Subsec. (a)(1). Pub. L. 113–295 struck out “, 59A” after “section 11, 55”. 1988—Subsec. (a)(1). Pub. L. 100–647, § 2001(c)(2), inserted reference to section 59A. Subsec. (b). Pub. L. 100–647, § 1012(s)(2)(B), inserted “, except where the context clearly indicates otherwise” after “foreign corporation”. Subsec. (e). Pub. L. 100–647, § 6133(a), substituted “interest on obligations of the United States which is not portfolio interest (as defined in section 881(c)(2))” for “interest on obligations of the United States”, and struck out at end “The preceding sentence shall not apply to any Guam corporation which is treated as not being a foreign corporation by section 881(b)(1) for the taxable year.” 1986—Subsec. (a)(1). Pub. L. 99–514, § 701(e)(4)(F), inserted reference to section 55. Subsec. (e). Pub. L. 99–514, § 1236(a), inserted “The preceding sentence shall not apply to any Guam corporation which is treated as not being a foreign corporation by section 881(b)(1) for the taxable year.” 1984—Subsec. (c)(2). Pub. L. 98–369 substituted reference to section “33” for “32” and “34” for “39”. 1983—Subsec. (c)(2). Pub. L. 97–424 struck out “and lubricating oil” after “gasoline”. 1980—Subsec. (a)(3). Pub. L. 96–499 added par. (3). 1978—Subsec. (a). Pub. L. 95–600 substituted in subsec. (a) heading “Imposition of tax” for “Normal tax and surtax” and in par. (1) heading “In general” for “Imposition of tax”. 1976—Subsecs. (c)(1)(A), (2), (d). Pub. L. 94–455 struck out “or his delegate” after “Secretary”. 1966—Pub. L. 89–809 substantially revised the income tax treatment of foreign corporations, introduced the concept of taxable income effectively connected with the conduct of a trade or business within the United States into provisions dealing with the imposition of tax, substituted a concept of gross income that included gross income derived from sources within the United States not effectively connected with the conduct of a trade or business within the United States and gross income effectively connected with the conduct of a trade or business within the United States for a concept of gross income that included only gross income from sources within the United States, and inserted provisions for an election to treat real property income as income connected with United States business, treatment of interest on United States obligations received by banks organized in possessions, and the returns of tax by agents, and inserted cross reference to section 906(b)(1).
Statutory Notes and Related Subsidiaries
Effective Date
of 2022 AmendmentAmendment by Pub. L. 117–169 applicable to taxable years beginning after Dec. 31, 2022, see section 10101(f) of Pub. L. 117–169, set out as a note under section 11 of this title.
Effective Date
of 2017 AmendmentAmendment by section 12001(b)(14) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 12001(c) of Pub. L. 115–97, set out as a note under section 11 of this title. Amendment by section 13001(b)(2)(L) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13001(c)(1) of Pub. L. 115–97, set out as a note under section 11 of this title. Amendment by section 14401(d)(2) of Pub. L. 115–97 applicable to base erosion payments (as defined in section 59A(d) of this title) paid or accrued in taxable years beginning after Dec. 31, 2017, see section 14401(e) of Pub. L. 115–97, set out as a note under section 26 of this title.
Effective Date
of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a
Savings Provision
, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date
of 1988 AmendmentAmendment by section 701(e)(4)(F) of 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. Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Superfund Revenue Act of 1986, Pub. L. 99–499, title V, to which it relates, see section 2001(e) of Pub. L. 100–647, set out as a note under section 56 of this title. Pub. L. 100–647, title VI, § 6133(c), Nov. 10, 1988, 102 Stat. 3721, provided that: “The
Amendments
made by this subsection [probably means ‘this section’, which amended section 882 and 884 of this title] shall apply to taxable years beginning after December 31, 1988.”
Effective Date
of 1986 AmendmentAmendment by section 701(e)(4)(F) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 701(f) of Pub. L. 99–514, set out as an
Effective Date
note under section 55 of this title. Pub. L. 99–514, title XII, § 1236(b), Oct. 22, 1986, 100 Stat. 2576, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after November 16, 1985.”
Effective Date
of 1984 AmendmentAmendment by Pub. L. 98–369 applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 475(a) of Pub. L. 98–369, set out as a note under section 21 of this title.
Effective Date
of 1983 AmendmentAmendment by Pub. L. 97–424 applicable with respect to articles sold after Jan. 6, 1983, see section 515(c) of Pub. L. 97–424, set out as a note under section 34 of this title.
Effective Date
of 1980 AmendmentAmendment by Pub. L. 96–499 applicable to disposition after June 18, 1980, see section 1125(a) of Pub. L. 96–499, set out as an
Effective Date
note under section 897 of this title.
Effective Date
of 1978 AmendmentAmendment by Pub. L. 95–600 applicable to taxable years beginning after Dec. 31, 1978, see section 301(c) of Pub. L. 95–600, set out as a note under section 11 of this title.
Effective Date
of 1966 AmendmentAmendment by Pub. L. 89–809 applicable with respect to taxable years beginning after Dec. 31, 1966, see section 104(n) of Pub. L. 89–809, set out as a note under section 11 of this title. Applicability of Certain
Amendments
by Pub. L. 99–514 in Relation to Treaty Obligations of United StatesFor applicability of amendment by section 701(e)(4)(F) of Pub. L. 99–514 notwithstanding 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)(2), (4) of Pub. L. 100–647, set out as a note under section 861 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 882
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73