following), subchapter N, chapter 1 of the Code, and the regulations thereunder.

(b) Nonresident foreign corporations. The gross income of a nonresident foreign corporation consists only of the items of income specified in section 881 (a) and described in § 1.881-2.

(c) Resident foreign corporations(1) Gross income not limited to specified items. The gross income of a resident foreign corporation is not limited to the items of income specified in section 881 (a) but includes every item of gross income which, in accordance with paragraph (a) of this section, is treated as gross income from sources within the United States. See also paragraph (a) (2) of § 1.882-1.

(2) Income from sale of property. The gross income of a resident foreign corporation shall, subject to the provisions of paragraph (a) of this section, include gains derived from the sale or exchange of capital assets, gains from hedging transactions, and profits derived from the sale within the United States of personal property or from the sale of real property located therein.

(3) Exchange transactions. Even though a foreign corporation may not be engaged in trade or business within the United States through the effecting of certain transactions in stocks, securities, or commodities, as described in paragraph (b) of § 1.871–8, nevertheless, it shall, subject to the provisions of paragraph (a) of this section, be required to include in gross income the gains and profits from those transactions if at any time during the taxable year it has otherwise engaged in trade or business within the United States.

(d) Exclusions. For exclusions from gross income see § 1.883-1.

§ 1.882-3 Deductions allowed foreign

corporations.

(a) Nonresident foreign corporations— (1) General. For purposes of computing the tax imposed by section 881(a) and described in § 1.881-2, a nonresident foreign corporation shall not be allowed any deductions, since the tax is imposed upon the gross amount received from sources within the United States.

(2) Election to be taxed on a net basis. Notwithstanding the provisions of subparagraph (1) of this paragraph, a nonresident foreign corporation shall be allowed the deductions allowed by paragraph (b) of this section, if pursuant to

a tax convention it is entitled, and does elect, to be subject to United States tax on a net basis as though it were engaged in trade or business within the United States through a permanent establishment situated therein.

(b) Resident foreign corporations— (1) General. For purposes of computing the income subject to tax, a resident foreign corporation shall be allowed deductions to the extent prescribed by paragraph (a) (2) of § 1.882-1, but subject to the limitations of this paragraph.

(2) Allocation of deductions. In computing the taxable income of a resident foreign corporation the deductions otherwise allowable shall be allowed only if, and to the extent that, they are connected with income from sources within the United States. For this purpose, the proper apportionment and allocation of the deductions with respect to sources of income within and without the United States shall be determined in the same manner as provided in paragraph (a) (1) of § 1.873-1 with respect to nonresident alien individuals.

(3) Special deductions. The special deductions allowed by section 241 (relating to the deductions for partially taxexempt interest, dividends received, etc.) in the case of a corporation shall be taken into account for purposes of subparagraph (2) of this paragraph. Thus, these deductions shall be allowed only in respect of amounts included in gross income pursuant to § 1.882-2.

(4) Exempt income. No deduction shall be allowed under this paragraph for the amount of any item or part thereof allocable to a class or classes of exempt income, including income exempt by tax convention. See section 265 and the regulations thereunder.

(5) Charitable contributions. Notwithstanding the rule of source prescribed in subparagraph (2) of this paragraph, a resident foreign corporation shall be allowed the deduction for charitable contributions and gifts, to the extent allowed by section 170, whether or not the deduction is connected with income from sources within the United States.

income is filed. The deductions allowed such a corporation electing under a tax convention to be subject to tax on a net basis shall be obtained by filing a return of income in the manner prescribed in the regulations under the tax convention. See paragraph (a) (2) of § 1.882-3.

(b) Resident foreign corporations— (1) Return necessary. A resident foreign corporation shall receive the benefit of the deductions allowed to it with respect to the income tax, only if it files or causes to be filed with the district director, in accordance with section 6012 and the regulations thereunder, a true and accurate return of its total income received from all sources within the United States.

(2) Tax on gross income. If a return is not so filed, the tax shall be collected on the basis of gross income, determined in accordance with § 1.882-1 but without regard to any deductions otherwise allowable.

(3) Return by district director. If a resident foreign corporation has various sources of income within the United States and a return of income has not been filed by it or on its behalf, the district director shall (i) cause a return of income to be made, (ii) include therein the income described in § 1.882-1 of that corporation from all sources concerning which he has information, and (iii) assess the tax and collect it from one or more of those sources of income within the United States, without allowance for any deductions.

§ 1.883

Statutory provisions; exclusions from gross income.

SEC. 883. Exclusions from gross income. The following items shall not be included in gross income of a foreign corporation, and shall be exempt from taxation under this subtitle:

(1) Ships under foreign flag. Earnings derived from the operation of a ship or ships documented under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States.

(2) Aircraft of foreign registry. Earnings derived from the operation of aircraft registered under the laws of a foreign country which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States.

§ 1.883-1 Exclusions from gross income of foreign corporations.

(a) Earnings of foreign ships or aircraft (1) Basic rule. So much of the income from sources within the United

States of a foreign corporation as consists of earnings derived from the operation of a ship or ships documented, or of aircraft registered, under the laws of a foreign country which grants an equivalent exemption to citizens of the United States nonresident in that foreign country and to corporations organized in the United States shall not be included in gross income.

(2) Equivalent exemption—(i) Ships. A foreign country which either imposes no income tax, or, in imposing that tax, exempts from taxation so much of the income of a citizen of the United States nonresident in that foreign country and of a corporation organized in the United States as consists of earnings derived from the operation of a ship or ships documented under the laws of the United States is considered as granting an equivalent exemption for purposes of the exclusion from gross income of the earnings of a foreign ship or ships.

(ii) Aircraft. A foreign country which either imposes no income tax, or, in imposing that tax, exempts from taxation so much of the income of a citizen of the United States nonresident in that foreign country and of a corporation organized in the United States as consists of earnings derived from the operation of aircraft registered under the laws of the United States is considered as granting an equivalent exemption for purposes of the exclusion from gross income of the earnings of foreign aircraft.

(b) Tax conventions. Income of any kind which is exempt from United States tax under the provisions of a tax convention or treaty to which the United States is a party shall not be included in the gross income of a foreign corporation. Income on which the tax is limited by tax convention shall, however, be included in the gross income of such a corporation if it is not otherwise excluded from gross income. See paragraph (f) of § 1.881-2, paragraph (a) (7) of § 1.882-1, and § 1.894–1.

(c) Other exclusions. Income which is from sources without the United States, as determined under the provisions of part I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder, or under the provisions of an applicable tax convention, shall not be included in the gross income of a foreign corporation. To determine specific exclusions in the case of other items which are from

sources within the United States, see the applicable sections of the Code.

§ 1.884 Statutory provisions; cross ref

erences.

SEC. 884. Cross references. (1) For withholding at source of tax on income of foreign corporations, see section 1442.

(2) For rules applicable in determining whether any foreign corporation is engaged in trade or business within the United States, see section 871 (c).

(3) For special provisions relating to foreign insurance companies, see subchapter L (sec. 801 and following).

(4) For special provisions relating to unrelated business income of foreign educational, charitable, and certain other exempt organizations, see section 512 (a).

MISCELLANEOUS PROVISIONS

§ 1.891 Statutory provisions; doubling of rates of tax on citizens and corporations of certain foreign countries.

SEC. 891. Doubling of rates of tax on citizens and corporations of certain foreign countries. Whenever the President finds that, under the laws of any foreign country, citizens or corporations of the United States are being subjected to discriminatory or extraterritorial taxes, the President shall so proclaim and the rates of tax imposed by sections 1, 3, 11, 802, 821, 831, 852, 871, and 881 shall, for the taxable year during which such proclamation is made and for each taxable year thereafter, be doubled in the case of each citizen and corporation of such foreign country; but the tax at such doubled rate shall be considered as imposed by such sections as the case may be. In no case shall this section operate to increase the taxes imposed by such sections (computed without regard to this section) to an amount in excess of 80 percent of the taxable income of the taxpayer (computed without regard to the deductions allowable under section 151 and under part VIII of subchapter B). Whenever the President finds that the laws -of any foreign country with respect to which the President has made a proclamation under the preceding provisions of this section have been modified so that discriminatory and extraterritorial taxes applicable to citizens and corporations of the United States have been removed, he shall so proclaim, and the provisions of this section providing for doubled rates of tax shall not apply to any -citizen or corporation of such foreign country with respect to any taxable year beginning after such proclamation is made. [Sec. 891 as amended by sec. 5(6), Life Insurance Company Tax Act 1955 (70 Stat. 49); ́sec. 3 (f) (1), Life Insurance Company Income Tax Act 1959 (73 Stat. 140)]

IT.D. 6610, 27 F.R. 8723, Aug. 31, 1962]

§ 1.892

Statutory provisions; income of foreign governments and of international organizations.

SEC. 892. Income of foreign governments and of international organizations. The income of foreign governments or international organizations received from investments in the United States in stocks, bonds, or other domestic securities, owned by such foreign governments or by international organizations, or from interest on deposits in banks in the United States of moneys belonging to such foreign governments or international organizations, or from any other source within the United States, shall not be included in gross income and shall be exempt from taxation under this subtitle.

§ 1.892-1 Income of foreign governments and international organizations.

The ex

(a) Foreign governments. emption of the income of foreign governments applies also to their political subdivisions. Any income collected by foreign governments from investments in the United States in stocks, bonds, or other domestic securities which are not actually owned by, but are loaned to, such foreign governments is subject to tax.

(b) International organizations—(1) Exempt from tax. Subject to the provisions of section 1 of the International Organizations Immunities Act (22 U.S.C. 288) (the provisions of which section are set forth in paragraph (b) (3) of § 1.8931), the income of an international organization (as defined in section 7701(a) (18)) received from investments in the United States in stocks, bonds, or other domestic securities, owned by such international organization, or from interest on deposits in banks in the United States of moneys belonging to such international organization, or from any other source within the United States, is exempt from Federal income tax.

(2) Income received prior to Presidential designation. An organization designated by the President through appropriate Executive order as entitled to enjoy the privileges, exemptions, and immunities provided in the International Organizations Immunities Act may enjoy the benefits of the exemption with respect to income of the prescribed character received by such organization prior to the date of the issuance of such Executive order, if (i) the Executive order does not provide otherwise and (ii) the organization is a public international organization in which the United States

participates, pursuant to a treaty or under the authority of an act of Congress authorizing such participation or making an appropriation for such participation, at the time such income is received.

§ 1.893 Statutory provisions; compensation of employees of foreign governments or international organizations. SEC. 893. Compensation of employees of foreign governments or international organizations-(a) Rule for exclusion. Wages, fees, or salary of any employee of a foreign government or of an international organization (including a consular or other officer, or 8 nondiplomatic representative), received as compensation for official services to such government or international organization shall not be included in gross income and shall be exempt from taxation under this subtitle if

(1) Such employee is not a citizen of the United States, or is a citizen of the Republic of the Philippines (whether or not a citizen of the United States); and

(2) In the case of an employee of a foreign government, the services are of a character similar to those performed by employees of the Government of the United States in foreign countries; and

(3) In the case of an employee of a foreign government, the foreign government grants an equivalent exemption to employees of the Government of the United States performing similar services in such foreign country.

(b) Certificate by Secretary of State. The Secretary of State shall certify to the Secretary of the Treasury the names of the foreign countries which grant an equivalent exemption to the employees of the Government of the United States performing services in such foreign countries, and the character of the services performed by employees of the Government of the United States in foreign countries.

§ 1.893-1

Compensation of employees of foreign governments or international organizations.

(a) Employees of foreign governments (1) Exempt from tax. Except to the extent that the exemption is limited by the execution and filing of the waiver provided for in section 247(b) of the Immigration and Nationality Act (8 U.S.C. 1257(b)), all employees of a foreign government (including consular or other officers, or nondiplomatic representatives) who are not citizens of the United States, or are citizens of the Republic of the Philippines (whether or not citizens of the United States), are exempt from Federal income tax with respect to wages, fees, or salaries re

ceived by them as compensation for official services rendered to such foreign government, provided (i) the services are of a character similar to those performed by employees of the Government of the United States in that foreign country and (ii) the foreign government whose employees are claiming exemption grants an equivalent exemption to employees of the Government of the United States performing similar services in that foreign country.

(2) Certificate by Secretary of State. Section 893 (b) provides that the Secretary of State shall certify to the Secretary of the Treasury the names of the foreign countries which grant an equivalent exemption to the employees of the Government of the United States performing services in such foreign countries, and the character of the services performed by employees of the Government of the United States in foreign countries.

(3) Items not exempt. The income received by employees of foreign governments from sources other than their salaries, fees, or wages, referred to in subparagraph (1) of this paragraph, is subject to Federal income tax.

(4) Immigration and Nationality Act. Section 247 (b) of the Immigration and Nationality Act provides as follows:

Sec. 247. Adjustment of status of certain resident aliens.

*

(b) The adjustment of status required by subsection (a) [of section 247 of the Immigration and Nationality Act] shall not be applicable in the case of any alien who requests that he be permitted to retain his status as an immigrant and who, in such form as the Attorney General may require, executes and files with the Attorney General a written waiver of all rights, privileges, exemptions, and immunities under any law or any executive order which would otherwise accrue to him because of the acquisition of an occupational status entitling him to a nonimmigrant status under paragraph (15) (A), (15) (E), or (15) (G) of section 101 (a).

(5) Effect of waiver. An employee of a foreign government who executes and files with the Attorney General the waiver provided for in section 247 (b) of the Immigration and Nationality Act thereby waives the exemption conferred by section 893 of the Code. As a consequence, that exemption does not apply to income received by that alien after the date of filing of the waiver.

(6) Citizens of the United States. The compensation of citizens of the United

States (other than those who are also citizens of the Republic of the Philippines) who are officers or employees of a foreign government is not exempt from income tax pursuant to this paragraph. But see section 911 and the regulations thereunder.

(b) Employees of international organizations-(1) Exempt from tax. Except to the extent that the exemption is limited by the execution and filing of the waiver provided for in section 247 (b) of the Immigration and Nationality Act and subject to the provisions of sections 1, 8, and 9 of the International Organizations Immunities Act (22 U.S.C. 288, 288e, 288f), wages, fees, or salary of any officer or employee of an international organization (as defined in section 7701 (a) (18)) received as compensation for official services to that international organization is exempt from Federal income tax, if that officer or employee (1) is not a citizen of the United States or (ii) is a citizen of the Republic of the Philippines (whether or not a citizen of the United States).

(2) Income earned prior to executive action. An individual of the prescribed class who receives wages, fees, or salary as compensation for official services to an organization designated by the President through appropriate Executive order as entitled to enjoy the privileges, exemptions, and immunities provided in the International Organizations Immunities Act and who has been duly notified to, and accepted by, the Secretary of State as an officer or employee of that organization, or who has been designated by the Secretary of State, prior to formal notification and acceptance, as a prospective officer or employee of that organization, may enjoy the benefits of the exemption with respect to compensation of the prescribed character earned by that individual, either prior to the date of the issuance of the Executive order, or prior to the date of the acceptance or designation by the Secretary of State, for official services to that organization, if (i) the Executive order does not provide otherwise, (ii) the organization is a public international organization in which the United States participates, pursuant to a treaty or under the authority of an act of Congress authorizing such participation or making an appropriation for such participation, at the time the compensation is earned, and (iii) the individual is an

officer or employee of that organization at that time.

(3) International Organizations Immunities Act. Sections 1, 8, and 9 of the International Organizations Immunities Act (22 U.S.C. 288, 288e, 288f) provide in part as follows:

SECTION 1. For the purposes of this title [International Organizations Immunities Act], the term "international organization" means a public international organization in which the United States participates pursuant to any treaty or under the authority of any Act of Congress authorizing such participation or making an appropriation for such participation, and which shall have been designated by the President through appropriate Executive order as being entitled to enjoy the privileges, exemptions, and immunities herein provided. The President shall be authorized, in the light of the functions performed by any such international organization, by appropriate Executive order to withhold or withdraw from any such organization or its officers or employees any of the privileges, exemptions, and immunities provided for in this title (including the amendments made by this title) or to condition or limit the enjoyment by any such organization or its officers or employees of any such privilege, exemption, or immunity. The President shall be authorized, if in his Judgment such action should be justified by reason of the abuse by an international organization or its officers and employees of the privileges, exemptions, and immunities herein provided or for any other reason, at any time to revoke the designation of any international organization under this section, whereupon the international organization in question shall cease to be classed as an international organization for the purposes of this title.

SEC. 8. (a) No person shall be entitled to the benefits of this title [International Organizations Immunities Act] unless he (1) shall have been duly notified to and accepted by the Secretary of State as a * * * officer, or employee; or (2) shall have been designated by the Secretary of State, prior to formal notification and acceptance, as a prospective *** officer, or employee; *

(b) Should the Secretary of State determine that the continued presence in the United States of any person entitled to the benefits of this title is not desirable, he shall so inform the * * international organization concerned * and after such person shall have had a reasonable length of time, to be determined by the Secretary of State, to depart from the United States, he shall cease to be entitled to such benefits.

(c) No person shall, by reason of the provisions of this title, be considered as receiving diplomatic status or as receiving any of the privileges incident thereto other than such as are specifically set forth herein.