under this section shall be reduced by the amount of any tax described in section 901 imposed by the foreign country or possession of the United States with respect to such refund; but no credit under this subpart, and no deduction under section 164 (relating to deduction for taxes) shall be allowed for any taxable year with respect to such tax imposed on the refund. No interest shall be assessed or collected on any amount of tax due on any redetermination by the Secretary or his delegate, resulting from a refund to the taxpayer, for any period before the receipt of such refund, except to the extent interest was paid by the foreign country or possession of the United States on such refund for such period. Subpart B-Earned Income of Citizens of United States Sec. 911. Earned income from sources without the United States SEC. 911. EARNED INCOME FROM SOURCES WITHOUT THE UNITED (a) GENERAL RULE.-The following items shall not be included in gross income and shall be exempt from taxation under this subtitle: (1) BONA FIDE RESIDENT OF FOREIGN COUNTRY.-In the case of an individual citizen of the United States, who establishes to the satisfaction of the Secretary or his delegate that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, amounts received from sources without the United States (except amounts paid by the United States or any agency thereof) if such amounts constitute earned income (as defined in subsection (b)) attributable to such period; but such individual shall not be allowed as a deduction from his gross income any deductions (other than those allowed by section 151, relating to personal exemptions) properly allocable to or chargeable against amounts excluded from gross income under this paragraph. (2) PRESENCE IN FOREIGN COUNTRY FOR 17 MONTHS. In the case of an individual citizen of the United States, who during any period of 18 consecutive months is present in a foreign country or countries during at least 510 full days in such period, amounts received from sources without the United States (except amounts paid by the United States or an agency thereof) if such amounts constitute earned income (as defined in subsection (b)) attributable to such period; but such individual shall not be allowed as a deduction from his gross income any deductions (other than those allowed by section 151, relating to personal exemptions) properly allocable to or chargeable against amounts excluded from gross income under this paragraph. If the 18-month period includes the entire taxable year, the amount excluded under this paragraph for such taxable year shall not exceed $20,000. If the 18-month period. does not include the entire taxable year, the amount excluded under this paragraph for such taxable year shall not exceed an amount which bears the same ratio to $20,000 as the number of days in the part of the taxable year within the 18-month period bears to the total number of days in such year. (b) DEFINITION OF EARNED INCOME.-For purposes of this section, the term "earned income" means wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. In the case of a taxpayer engaged in a trade or business in which both personal services and capital are material income-producing factors, under regulations prescribed by the Secretary or his delegate, a reasonable allowance as compensation for the personal services rendered by the taxpayer, not in excess of 30 percent of his share of the net profits of such trade or business. shall be considered as earned income. (c) CROSS REFERENCE. For administrative and penal provisions relating to the exclusion provided for in this section, see sections 6001, 6011, 6012 (c), and the other provisions of subtitle F. SEC. 912. EXEMPTIONS FOR CERTAIN ALLOWANCES. The following items shall not be included in gross income, and shall be exempt from taxation under this subtitle: (1) FOREIGN AREAS ALLOWANCES.-In the case of civilian officers and employees of the Government of the United States, amounts received as allowances or otherwise (but not amounts received as post differentials) under (A) title IX of the Foreign Service Act of 1946, as amended (22 U.S.C., sec. 1131 and following), (B) section 4 of the Central Intelligence Agency Act of 1949, as amended (50 U.S.C., sec. 403e), (C) title II of the Overseas Differentials and Allowances Act, or (D) subsection (e) or (f) of the first section of the Administrative Expenses Act of 1946, as amended, or section 22 of such Act. (2) COST-OF-LIVING ALLOWANCES.-In the case of civilian officers or employees of the Government of the United States stationed outside the continental United States (other than Alaska), amounts (other than amounts received under title II of the Overseas Differentials and Allowances Act) received as cost-of-living allowances in accordance with regulations approved by the President. Subpart C-Western Hemisphere Trade Corporations Sec. 921. Definition of Western Hemisphere trade corporations. SEC. 921. DEFINITION OF WESTERN PORATIONS. HEMISPHERE TRADE COR For purposes of this subtitle, the term "Western Hemisphere trade corporation" means a domestic corporation all of whose business (other than incidental purchases) is done in any country or countries in North, Central, or South America, or in the West Indies, and which satisfies the following conditions: (1) if 95 percent or more of the gross income of such domestic corporation for the 3-year period immediately preceding the close of the taxable year (or for such part of such period during which the corporation was in existence) was derived from sources without the United States; and (2) if 90 percent or more of its gross income for such period or such part thereof was derived from the active conduct of a trade or business. For any taxable year beginning prior to January 1, 1954, the determination as to whether any corporation meets the requirements of section 109 of the Internal Revenue Code of 1939 shall be made as if this section had not been enacted and without inferences drawn from the fact that this section is not expressly made applicable with respect to taxable years beginning prior to January 1, 1954. SEC. 922. SPECIAL DEDUCTION. In the case of a Western Hemisphere trade corporation there shall be allowed as a deduction in computing taxable income an amount computed as follows (1) First determine the taxable income of such corporation computed without regard to this section. (2) Then multiply the amount determined under paragraph (1) by the fraction (A) the numerator of which is 14 percent, and (B) the denominator of which is that percentage which equals the sum of the normal tax rate and the surtax rate for the taxable year prescribed by section 11. Subpart D-Possessions of the United States Sec. 931. Income from sources within possessions of the United Sec. 932. Citizens of possessions of the United States. Sec. 933. Income from sources within Puerto Rico. Sec. 934. Limitation on reduction in income tax liability incurred to the Virgin Islands. SEC. 931. INCOME FROM SOURCES WITHIN POSSESSIONS OF THE UNITED STATES. (a) GENERAL RULE.-In the case of citizens of the United States or domestic corporations, gross income means only gross income from sources within the United States if the conditions of both paragraph (1) and paragraph (2) are satisfied: in (1) THREE-YEAR PERIOD.-If 80 percent or more of the gross come of such citizen or domestic corporation (computed without the benefit of this section) for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United States; and (2) TRADE OR BUSINESS. -If— (A) in the case of such corporation, 50 percent or more of its gross income (computed without the benefit of this section) for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States; or (B) in the case of such citizen, 50 percent or more of his gross income (computed without the benefit of this section) for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another. (b) AMOUNTS RECEIVED IN UNITED STATES.-Notwithstanding subsection (a), there shall be included in gross income all amounts received by such citizens or corporations within the United States, whether derived from sources within or without the United States. (c) DEFINITION -For purposes of this section, the term "possession of the United States" does not include the Virgin Islands of the United States, and such term when used with respect to citizens of the United States does not include Puerto Rico. (d) DEDUCTIONS.— (1) Citizens of the United States entitled to the benefits of this section shall have the same deductions as are allowed by section 873 in the case of a nonresident alien individual engaged in trade or business within the United States. (2) Domestic corporations entitled to the benefits of this section shall have the same deductions as are allowed by section 882 (c) in the case of a foreign corporation engaged in trade or business within the United States. (e) DEDUCTION FOR PERSONAL EXEMPTION.-A citizen of the United States entitled to the benefits of this section shall be allowed a deduction for only one exemption under section 151. (f) ALLOWANCE OF DEDUCTIONS AND CREDITS.-Persons entitled to the benefits of this section shall receive the benefit of the deductions and credits allowed to them in this subtitle only by filing or causing to be filed with the Secretary or his delegate a true and accurate return of their total income received from all sources in the United States, in the manner prescribed in subtitle F, including therein all the information which the Secretary or his delegate may deem necessary for the calculation of such deductions and credits. (g) FOREIGN TAX CREDIT.-Persons entitled to the benefits of this section shall not be allowed the credits against the tax for taxes of foreign countries and possessions of the United States allowed by section 901. (h) INTERNEES.-In the case of a citizen of the United States interned by the enemy while serving as an employee within a possession of the United States (1) if such citizen was confined in any place not within a possession of the United States, such place of confinement shall, for purposes of this section, be considered as within a possession of the United States; and (2) subsection (b) shall not apply to any compensation received within the United States by such citizen attributable to the period of time during which such citizen was interned by the enemy. (i) EMPLOYEES OF THE UNITED STATES.-For purposes of this section, amounts paid for services performed by a citizen of the United States as an employee of the United States or any agency thereof shall be deemed to be derived from sources within the United States. SEC. 932. CITIZENS OF POSSESSIONS OF THE UNITED STATES. (a) GENERAL RULE.-Any individual who is a citizen of any possession of the United States (but not otherwise a citizen of the United States) and who is not a resident of the United States shall be subject to taxation under this subtitle only as to income derived from sources within the United States, and in such case the tax shall be computed and paid in the same manner and subject to the same conditions as in the case of other persons who are taxable only as to income derived from such sources. This section shall have no application in the case of a citizen of Puerto Rico. (b) VIRGIN ISLANDS.-Nothing in this section shall be construed to alter or amend 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), relating to the imposition of income taxes in the Virgin Islands of the United States. (c) GUAM. For applicability of United States income tax laws in Guam, see section 31 of the Act of August 1, 1950 (48 U. S. C. 1421i); for disposition of the proceeds of such taxes, see section 30 of such Act (48 Ū. S. C. 1421h). SEC. 933. INCOME FROM SOURCES WITHIN PUERTO RICO. The following items shall not be included in gross income and shall be exempt from taxation under this subtitle: (1) RESIDENT OF PUERTO RICO FOR ENTIRE TAXABLE YEAR. -In the case of an individual who is a bona fide resident of Puerto Rico during the entire taxable year, income derived from sources within Puerto Rico (except amounts received for services performed as an employee of the United States or any agency thereof); but such individual shall not be allowed as a deduction from his gross income any deductions (other than the deduction under section 151, relating to personal exemptions) properly allocable to or chargeable against amounts excluded from gross income under this paragraph. (2) TAXABLE YEAR OF CHANGE OF RESIDENCE FROM PUERTO RICO. In the case of an individual citizen of the United States who has been a bona fide resident of Puerto Rico for a period of at least 2 years before the date on which he changes his residence from Puerto Rico, income derived from sources therein (except amounts received for services performed as an employee of the United States or any agency thereof) which is attributable to that part of such period of Puerto Rican residence before such date; but such individual shall not be allowed as a deduction from his gross income any deductions (other than the deduction for personal exemptions under section 151) properly allocable to or chargeable against amounts excluded from gross income under this paragraph. SEC. 934. LIMITATION ON REDUCTION IN INCOME TAX LIABILITY INCURRED TO THE VIRGIN ISLANDS. (a) GENERAL RULE.-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) or (c). |