§971 — Title 26 Internal Revenue Code | U.S. Code

§971 Definitions

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter N— Tax Based on Income From Sources Within or Without the United States › Part III— INCOME FROM SOURCES WITHOUT THE UNITED STATES › Subpart G— Export Trade Corporations › § 971

Last updated Apr 5, 2026|Official source

Summary

Sets rules for when a controlled foreign corporation (a foreign company controlled by U.S. owners) counts as an export trade corporation. To qualify it must have 90% or more of its gross income from outside the United States over the prior three years (or since it began), and normally 75% or more of that income must be export trade income. If at least 50% of its gross income in that period is export trade income from U.S.-grown agricultural products, it can qualify even without meeting the 75% test. A company cannot qualify for any tax year after October 31, 1971 unless it qualified for some year before that date, and if it fails to qualify for any three straight taxable years after that date, it cannot qualify again. Export trade income — net income from sales of U.S.-made goods to unrelated buyers outside the U.S., fees or commissions for related services, income from licensing intangibles for use outside the U.S., payments for use of export property, and interest tied to export trade assets. Export trade assets — working capital needed for export activity, inventory held for export, facilities outside the U.S. for handling or servicing export goods, and debts or notes from unrelated purchasers tied to export sales or services. Export promotion expenses — reasonable wages, rent, wear-and-tear (depreciation), and other ordinary expenses allocable to getting export trade income. Export property — property made, produced, grown, or extracted in the United States. Unrelated person — anyone who is not a related person as defined in section 954(d)(3).

Title 26, §971

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of this subpart, the term “export trade corporation” means—

(1)A controlled foreign corporation (as defined in section 957) which satisfies the following conditions:

(A)90 percent or more of the gross income of such corporation for the 3–year period immediately preceding the close of the taxable year (or such part of such period subsequent to the effective date of this subpart during which the corporation was in existence) was derived from sources without the United States, and

(B)75 percent or more of the gross income of such corporation for such period constituted gross income in respect of which such corporation derived export trade income.

(2)If 50 percent or more of the gross income of a controlled foreign corporation in the period specified in subsection (a)(1)(A) is gross income in respect of which such corporation derived export trade income in respect of agricultural products grown in the United States, it may qualify as an export trade corporation although it does not meet the requirements of subsection (a)(1)(B).

(3)No controlled foreign corporation may qualify as an export trade corporation for any taxable year beginning after October 31, 1971, unless it qualified as an export trade corporation for any taxable year beginning before such date. If a corporation fails to qualify as an export trade corporation for a period of any 3 consecutive taxable years beginning after such date, it may not qualify as an export trade corporation for any taxable year beginning after such period.

(b)For the purposes of this subpart, the term “export trade income” means net income from—

(1)the sale to an unrelated person for use, consumption, or disposition outside the United States of export property (as defined in subsection (e)), or from commissions, fees, compensation, or other income from the performance of commercial, industrial, financial, technical, scientific, managerial, engineering, architectural, skilled, or other services in respect to such sales or in respect of the installation or maintenance of such export property;

(2)commissions, fees, compensation, or other income from commercial, industrial, financial, technical, scientific, managerial, engineering, architectural, skilled, or other services performed in connection with the use by an unrelated person outside the United States of patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property acquired or developed and owned by the manufacturer, producer, grower, or extractor of export property in respect of which the export trade corporation earns export trade income under paragraph (1);

(3)commissions, fees, rentals, or other compensation or income attributable to the use of export property by an unrelated person or attributable to the use of export property in the rendition of technical, scientific, or engineering services to an unrelated person; and

(4)interest from export trade assets described in subsection (c)(4).

(c)For purposes of this subpart, the term “export trade assets” means—

(1)working capital reasonably necessary for the production of export trade income,

(2)inventory of export property held for use, consumption, or disposition outside the United States,

(3)facilities located outside the United States for the storage, handling, transportation, packaging, or servicing of export property, and

(4)evidences of indebtedness executed by persons, other than related persons, in connection with payment for purchases of export property for use, consumption, or disposition outside the United States, or in connection with the payment for services described in subsections (b)(2) and (3).

(d)For purposes of this subpart, the term “export promotion expenses” means the following expenses paid or incurred in the receipt or production of export trade income—

(1)a reasonable allowance for salaries or other compensation for personal services actually rendered for such purpose,

(2)rentals or other payments for the use of property actually used for such purpose,

(3)a reasonable allowance for the exhaustion, wear and tear, or obsolescence of property actually used for such purpose, and

(4)any other ordinary and necessary expenses of the corporation to the extent reasonably allocable to the receipt or production of export trade income.

(e)For purposes of this subpart, the term “export property” means any property or any interest in property manufactured, produced, grown, or extracted in the United States.

(f)For purposes of this subpart, the term “unrelated person” means a person other than a related person as defined in section 954(d)(3).

Notes & Related Subsidiaries

Editorial Notes

Amendments

1971—Subsec. (a)(3). Pub. L. 92–178 added par. (3).

Statutory Notes and Related Subsidiaries

Treatment of Certain Former Export Trade Corporations Pub. L. 99–514, title XVIII, § 1876(m), Oct. 22, 1986, 100 Stat. 2901, provided that: “If—“(1) a corporation which is not an export trading corporation for its most recent taxable year ending before the date of the enactment of the Tax Reform Act of 1984 [

July 18, 1984] but was an export trading corporation for any prior taxable year, and “(2)(A) such corporation may not qualify as an export trade corporation for any taxable year beginning after

December 31, 1984, by reason of section 971(a)(3) of the Internal Revenue Code of 1954 [now 1986], or (B) such corporation makes an election, before the date 6 months after the date of the enactment of this Act [Oct. 22, 1986], not to be treated as an export trade corporation with respect to taxable years beginning after

December 31, 1984, rules similar to the rules of paragraphs (2) and (4) of section 805(b) of the Tax Reform Act of 1984 [set out as a note under section 991 of this title] shall apply to such corporation. For purposes of the preceding sentence, the term ‘export trade corporation’ has the meaning given such term by section 971 of such Code.”