Title 26 — Internal Revenue CodeRelease 119-73
§964 Miscellaneous provisions
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 F— - Controlled Foreign Corporations › § 964
Summary
Treat the earnings and losses of a foreign corporation much like those of a U.S. corporation, using rules the Treasury creates, except as allowed by section 312(k)(4). Illegal bribes, kickbacks, or similar payments that would violate the Foreign Corrupt Practices Act and are covered by section 162(c) cannot be used to lower earnings or increase losses. If a controlled foreign corporation (CFC) cannot send money to its U.S. shareholders because of foreign laws or currency limits, the blocked amounts can be left out of certain U.S. tax tests (sections 952 and 956) under Treasury rules. The Treasury can require U.S. shareholders of a CFC to keep records and can let one person keep or provide the same records for others. A "qualified insurance branch" is a branch that is licensed and mainly does insurance in a foreign country, keeps separate books, has its main place of business there, would be taxed like a separate U.S. insurance company, and for which an election is made. The branch can be treated as its own foreign company, and transfers from the branch to other company accounts can count as dividends. When a CFC sells stock in another foreign company, gain that would be treated as a dividend under section 1248(a) if the seller were U.S. must be treated the same way. For CFC tax years beginning after December 31, 2017, if the CFC sells stock held 1 year or more, the foreign-source part of that dividend is treated as subpart F income of the selling CFC; U.S. shareholders must include their pro rata share under section 951, and they may claim the section 245A(a) deduction as if it were a dividend. Rules like section 961(d) and the foreign-source rules of section 245A(c) apply.
Full Legal Text
Title 26, §964
Internal Revenue Code — Source: USLM XML via OLRC
(a)Except as provided in section 312(k)(4), for purposes of this subpart, the earnings and profits of any foreign corporation, and the deficit in earnings and profits of any foreign corporation, for any taxable year shall be determined according to rules substantially similar to those applicable to domestic corporations, under regulations prescribed by the Secretary. In determining such earnings and profits, or the deficit in such earnings and profits, the amount of any illegal bribe, kickback, or other payment (within the meaning of section 162(c)) shall not be taken into account to decrease such earnings and profits or to increase such deficit. The payments referred to in the preceding sentence are payments which would be unlawful under the Foreign Corrupt Practices Act of 1977 if the payor were a United States person.
(b)Under regulations prescribed by the Secretary, no part of the earnings and profits of a controlled foreign corporation for any taxable year shall be included in earnings and profits for purposes of section 952 and 956, if it is established to the satisfaction of the Secretary that such part could not have been distributed by the controlled foreign corporation to United States shareholders who own (within the meaning of section 958(a)) stock of such controlled foreign corporation because of currency or other restrictions or limitations imposed under the laws of any foreign country.
(c)(1)The Secretary may by regulations require each person who is, or has been, a United States shareholder of a controlled foreign corporation to maintain such records and accounts as may be prescribed by such regulations as necessary to carry out the provisions of this subpart and subpart G.
(2)Where, but for this paragraph, two or more United States persons would be required to maintain or furnish the same records and accounts as may by regulations be required under paragraph (1) with respect to the same controlled foreign corporation for the same period, the Secretary may by regulations provide that the maintenance or furnishing of such records and accounts by only one such person shall satisfy the requirements of paragraph (1) for such other persons.
(d)(1)For purposes of this chapter, section 6038, section 6046, and such other provisions as may be specified in regulations—
(A)a qualified insurance branch of a controlled foreign corporation shall be treated as a separate foreign corporation created under the laws of the foreign country with respect to which such branch qualifies under paragraph (2), and
(B)except as provided in regulations, any amount directly or indirectly transferred or credited from such branch to one or more other accounts of such controlled foreign corporation shall be treated as a dividend paid to such controlled foreign corporation.
(2)For purposes of paragraph (1), the term “qualified insurance branch” means any branch of a controlled foreign corporation which is licensed and predominantly engaged on a permanent basis in the active conduct of an insurance business in a foreign country if—
(A)separate books and accounts are maintained for such branch,
(B)the principal place of business of such branch is in such foreign country,
(C)such branch would be taxable under subchapter L if it were a separate domestic corporation, and
(D)an election under this paragraph applies to such branch.
(3)The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(e)(1)If a controlled foreign corporation sells or exchanges stock in any other foreign corporation, gain recognized on such sale or exchange shall be included in the gross income of such controlled foreign corporation as a dividend to the same extent that it would have been so included under section 1248(a) if such controlled foreign corporation were a United States person. For purposes of determining the amount which would have been so includible, the determination of whether such other foreign corporation was a controlled foreign corporation shall be made without regard to the preceding sentence.
(2)Clause (i) of section 954(c)(3)(A) shall not apply to any amount treated as a dividend by reason of paragraph (1).
(3)For purposes of this subsection, a controlled foreign corporation shall be treated as having sold or exchanged any stock if, under any provision of this subtitle, such controlled foreign corporation is treated as having gain from the sale or exchange of such stock.
(4)(A)If, for any taxable year of a controlled foreign corporation beginning after December 31, 2017, any amount is treated as a dividend under paragraph (1) by reason of a sale or exchange by the controlled foreign corporation of stock in another foreign corporation held for 1 year or more, then, notwithstanding any other provision of this title—
(i)the foreign-source portion of such dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the selling controlled foreign corporation for such taxable year,
(ii)a United States shareholder with respect to the selling controlled foreign corporation shall include in gross income for the taxable year of the shareholder with or within which such taxable year of the controlled foreign corporation ends an amount equal to the shareholder’s pro rata share (determined in the same manner as under section 951(a)(2)) of the amount treated as subpart F income under clause (i), and
(iii)the deduction under section 245A(a) shall be allowable to the United States shareholder with respect to the subpart F income included in gross income under clause (ii) in the same manner as if such subpart F income were a dividend received by the shareholder from the selling controlled foreign corporation.
(B)For purposes of this title, in the case of a sale or exchange by a controlled foreign corporation of stock in another foreign corporation in a taxable year of the selling controlled foreign corporation beginning after December 31, 2017, rules similar to the rules of section 961(d) shall apply.
(C)For purposes of this paragraph, the foreign-source portion of any amount treated as a dividend under paragraph (1) shall be determined in the same manner as under section 245A(c).
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The Foreign Corrupt Practices Act of 1977, referred to in subsec. (a), is title I of Pub. L. 95–213, Dec. 19, 1977, 91 Stat. 1494, which enacted sections 78dd–1 to 78dd–3 of Title 15, Commerce and Trade, and amended section 78m and 78ff of Title 15. For complete classification of this Act to the Code, see
Short Title
of 1977 Amendment note set out under section 78a of Title 15 and Tables.
Amendments
2017—Subsec. (b). Pub. L. 115–97, § 14212(b)(4), struck out “, 955,” after “section 952”. Subsec. (e)(4). Pub. L. 115–97, § 14102(c)(1), added par. (4). 1997—Subsec. (e). Pub. L. 105–34 added subsec. (e). 1988—Subsec. (d). Pub. L. 100–647 added subsec. (d). 1982—Subsec. (a). Pub. L. 97–248 inserted provision that payments referred to in sentence beginning “In determining such earnings and profits” are payments which would be unlawful under the Foreign Corrupt Practices Act of 1977 if the payor were a United States person. 1981—Subsec. (a). Pub. L. 97–34 substituted “section 312(k)(4)” for “section 312(k)(3)”. 1976—Subsec. (a). Pub. L. 94–455, §§ 1065(b), 1901(b)(32)(B)(ii), 1906(b)(13)(A), struck out “or his delegate” after “Secretary”, inserted second sentence, and substituted “312(k)(3)” for “312(m)(3)” after “provided in section”. Subsecs. (b), (c)(1), (2). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary” whenever appearing. 1969—Subsec. (a). Pub. L. 91–172 inserted reference to the exception provided for in section 312(m)(3).
Statutory Notes and Related Subsidiaries
Effective Date
of 2017 Amendment Pub. L. 115–97, title I, § 14102(c)(2), Dec. 22, 2017, 131 Stat. 2193, provided that: “The
Amendments
made by this subsection [amending this section] shall apply to sales or exchanges after December 31, 2017.” Amendment by section 14212(b)(4) of Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14212(c) of Pub. L. 115–97, set out as a note under section 851 of this title.
Effective Date
of 1997 Amendment Pub. L. 105–34, title XI, § 1111(c)(1), Aug. 5, 1997, 111 Stat. 969, provided that: “The amendment made by subsection (a) [amending this section] shall apply to gain recognized on transactions occurring after the date of the enactment of this Act [Aug. 5, 1997].”
Effective Date
of 1988 Amendment Pub. L. 100–647, title VI, § 6129(b), Nov. 10, 1988, 102 Stat. 3716, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years of foreign corporations beginning after December 31, 1988.”
Effective Date
of 1982 AmendmentAmendment by Pub. L. 97–248 applicable to payments made after Sept. 3, 1982, see section 288(c) of Pub. L. 97–248, set out as a note under section 162 of this title.
Effective Date
of 1981 AmendmentAmendment by Pub. L. 97–34 applicable to property placed in service after Dec. 31, 1980, in taxable years ending after that date, see section 209(a) of Pub. L. 97–34, set out as an
Effective Date
note under section 168 of this title.
Effective Date
of 1976 AmendmentAmendment by section 1065(b) of Pub. L. 94–455 applicable to payments described in section 162(c) of this title made more than 30 days after Oct. 4, 1976, see section 1066(b) of Pub. L. 94–455, set out as a note under section 952 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 964
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73