Title 26 — Internal Revenue CodeRelease 119-73
§934 Limitation on reduction in income tax liability incurred to the Virgin Islands
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 III— - INCOME FROM SOURCES WITHOUT THE UNITED STATES › Subpart Subpart D— - Possessions of the United States › § 934
Summary
Local laws in the Virgin Islands may not cut or cancel income taxes that people or companies owe to the Virgin Islands under the relevant federal tax rules by giving grants, subsidies, or similar payments, except in the limited cases below. Tax reductions are allowed for tax tied to income that comes from inside the Virgin Islands or from a business run in the Virgin Islands. That allowance does not apply to amounts due under section 932(b). For a "qualified foreign corporation" (one with less than 10% U.S. ownership by vote and value), tax on income earned outside the United States and not connected to a U.S. business may also be treated differently. The Secretary will make the rules to decide where income comes from and whether it is connected to a U.S. business.
Full Legal Text
Title 26, §934
Internal Revenue Code — Source: USLM XML via OLRC
(a)Tax liability incurred to the Virgin Islands pursuant to this subtitle, as made applicable in the Virgin Islands by the Act entitled “An Act making appropriations for the naval service for the fiscal year ending June 30, 1922, and for other purposes”, approved July 12, 1921 (48 U.S.C. 1397), or pursuant to section 28(a) of the Revised Organic Act of the Virgin Islands, approved July 22, 1954 (48 U.S.C. 1642), shall not be reduced or remitted in any way, directly or indirectly, whether by grant, subsidy, or other similar payment, by any law enacted in the Virgin Islands, except to the extent provided in subsection (b).
(b)(1)Except as provided in paragraph (2), subsection (a) shall not apply with respect to so much of the tax liability referred to in subsection (a) as is attributable to income derived from sources within the Virgin Islands or income effectively connected with the conduct of a trade or business within the Virgin Islands.
(2)Paragraph (1) shall not apply to any liability payable to the Virgin Islands under section 932(b).
(3)(A)In the case of a qualified foreign corporation, subsection (a) shall not apply with respect to so much of the tax liability referred to in subsection (a) as is attributable to income which is derived from sources outside the United States and which is not effectively connected with the conduct of a trade or business within the United States.
(B)For purposes of subparagraph (A), the term “qualified foreign corporation” means any foreign corporation if less than 10 percent of—
(i)the total voting power of the stock of such corporation, and
(ii)the total value of the stock of such corporation, is owned or treated as owned (within the meaning of section 958) by 1 or more United States persons.
(4)The determination as to whether income is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States shall be made under regulations prescribed by the Secretary.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2004—Subsec. (b)(4). Pub. L. 108–357 struck out “the Virgin Islands or” before “the United States” in two places. 1986—Subsec. (a). Pub. L. 99–514, § 1275(c)(2)(A), struck out “or (c) or in section 934A” after “subsection (b)”. Subsec. (b). Pub. L. 99–514, § 1275(c)(1), (2)(B), added subsec. (b) and struck out former subsec. (b) which excepted from subsec. (a) domestic or Virgin Islands corporations to the extent they derived income from sources without the United States under certain conditions. Subsec. (c). Pub. L. 99–514, § 1275(c)(1), struck out subsec. (c) which provided an exception to subsec. (a) of this section for individual citizens of the United States residing in the Virgin Islands to the extent their income is derived from sources within the Virgin Islands. Subsec. (d). Pub. L. 99–514, § 1275(c)(1), struck out subsec. (d) which related to requirement to supply information. Subsec. (e). Pub. L. 99–514, § 1275(a)(2)(A), struck out subsec. (e) which provided for tax treatment of intangible property income of certain domestic corporations. Subsec. (f). Pub. L. 99–514, § 1275(a)(2)(A), struck out subsec. (f) which provided a transitional rule for applying subsec. (b)(2) of this section with respect to taxable years beginning after Dec. 31, 1982, and before Jan. 1, 1985. Pub. L. 99–514, § 1876(f)(2), struck out subsec. (f) which provided that subsec. (a) of this section not apply in the case of a Virgin Islands corporation which is a FSC. 1984—Subsec. (f). Pub. L. 98–369 added subsec. (f) relating to FSC. 1983—Subsec. (a). Pub. L. 97–455 inserted “or in section 934A” after “subsection (b) or (c)”. 1982—Subsec. (b)(2). Pub. L. 97–248, § 213(b)(1), substituted “65 percent” for “50 percent”. Subsec. (e). Pub. L. 97–248, § 213(b)(2), added subsec. (e). Subsec. (f). Pub. L. 97–248, § 213(b)(2), added a temporary subsec. (f) which provided that in applying subsec. (b)(2) with respect to taxable years beginning after
December 31, 1982, and before
January 1, 1985, “55 percent” shall be substituted for “65 percent” for taxable years beginning in calendar year 1983 and “60 percent” shall be substituted for “65 percent” for taxable years beginning in calendar year 1984. 1976—Subsec. (b). Pub. L. 94–455, § 1901(a)(118), struck out “For the purposes of this subsection, all amounts received by such corporation within the United States, whether derived from sources within or without the United States, shall be considered as being derived from sources within the United States”. Subsec. (d). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary” in two places.
Statutory Notes and Related Subsidiaries
Effective Date
of 2004 AmendmentAmendment by Pub. L. 108–357 applicable to taxable years ending after Oct. 22, 2004, see section 908(d)(1) of Pub. L. 108–357, set out as an
Effective Date
note under section 937 of this title.
Effective Date
of 1986 AmendmentAmendment by section 1275(a)(2)(A), (c)(1), (2) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 1277 of Pub. L. 99–514, set out as a note under section 931 of this title. Amendment by section 1876(f)(2) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.
Effective Date
of 1984 AmendmentAmendment by Pub. L. 98–369 applicable to transactions after Dec. 31, 1984, in taxable years ending after such date, see section 805(a)(1) of Pub. L. 98–369, as amended, set out as a note under section 245 of this title.
Effective Date
of 1983 Amendment Pub. L. 97–455, § 1(e), Jan. 12, 1983, 96 Stat. 2498, provided that: “(1) In general.—Except as provided in paragraph (2), the
Amendments
made by this section [enacting section 934A and amending this section] shall apply to amounts received after the date of the enactment of this Act [Jan. 12, 1983] in taxable years ending after such date. “(2) Withholding.—The amendment made by subsection (b) [enacting section 1444 of this title] shall apply to payments made after the date of the enactment of this Act.”
Effective Date
of 1982 AmendmentAmendment by Pub. L. 97–248 applicable to taxable years beginning after Dec. 31, 1982, except that so much of this section to which former section 936(h)(6) applied by reason of subsec. (e)(4) of this section was applicable to taxable years ending after July 1, 1982, see section 213(e)(1), (2) of Pub. L. 97–248 set out as a note under section 246 of this title.
Effective Date
of 1976 AmendmentAmendment by section 1901(a)(118) of Pub. L. 94–455 applicable with respect to 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
Pub. L. 86–779, § 4(e)(1), Sept. 14, 1960, 74 Stat. 1000, provided that: “The
Amendments
made by subsection (a) [enacting this section] shall apply to tax liability incurred with respect to taxable years beginning on or after January 1, 1960.” Plan
Amendments
Not Required Until January 1, 1989For provisions directing that if any
Amendments
made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 934
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73