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 a 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 offcial 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.

SEC. 9. The privileges, exemptions, and immunities of international organizations and of their officers and employees provided for in this title [International Organizations Immunities Act], shall be granted notwithstanding the fact that the similar privileges, exemptions, and immunities granted to a foreign government, its offcers, or employees, may be conditioned upon the existence of reciprocity by that foreign government: Provided, That nothing contained in this title shall be construed as precluding the Secretary of State from withdrawing the privileges, exemptions, and immunities herein provided from persons who are nationals of any foreign country on the ground that such country is failing to accord corresponding privileges, exemptions, and immunities to citizens of the United States.

(4) Effect of waiver. An officer or employee of an international organization who executes and files with the Attorney General the waiver provided for in section 247(b) of the Immigration and Nationality Act (8 U.S.C. 1257(b)) thereby waives the exemption conferred by section 893 of the Code. As a consequence, that exemption does not apply to income received by that individual after the date of filing of the waiver.

(5) 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 an international organization is not exempt from income tax pursuant to this paragraph. But see section 911 and the regulations thereunder.

(c) Tax conventions, consular conventions, and international agreements-(1) Exemption dependent upon internal revenue laws. A tax convention or consular convention between the United States and a foreign country, which provides that the United States may include in the tax base of its residents all income taxable under the internal revenue laws, and which makes no specific exception for the income of the employees of that foreign government, does not provide any exemption (with respect to residents of the United States) beyond that which is provided by the internal revenue laws. Accordingly, the effect of the execution and filing of a waiver under section 247 (b) of the Immigration and Nationality Act by an employee of a foreign government which is a party to such a convention is to subject the employee to tax to the same extent as provided in paragraph (a) (5) of this section with

respect to the waiver of exemption unde section 893.

(2) Exemption not dependent upo internal revenue laws. If a tax conver tion, consular convention, or interna tional agreement provides that compen sation paid by the foreign government o international organization to its em ployees is exempt from Federal income tax, and the application of this exemption is not dependent upon the provisions of the internal revenue laws, the exemption so conferred is not affected by the execution and filing of a waiver under section 247 (b) of the Immigration and Nationality Act. For examples of exemptions which are not affected by the Immigration and Nationality Act, see article X of the income tax convention between the United States and the United Kingdom (60 Stat. 1383); article IX, section 9 (b), of the Articles of Agreement of the International Monetary Fund (60 Stat. 1414); and article VII, section 9 (b), of the Articles of Agreement of the International Bank for Reconstruction and Development (60 Stat. 1458).

§ 1.894 Statutory provisions; income exempt under treaty.

SEC. 894. Income exempt under treaty. Income of any kind, to the extent required by any treaty obligation of the United States, shall not be included in gross income and shall be exempt from taxation under this subtitle.

§ 1.894-1

Income exempt under treaty.

Income of any kind, to the extent required by any treaty obligation of the United States, shall not be included in gross income and shall be exempt from income tax. A tax convention shall be considered as a treaty for this purpose. See paragraph (e) of § 1.871-7, paragraph (f) of § 1.881-2, or paragraph (a) (7) of

1.882-1 for the manner of computing the tax liability of a nonresident alien individual or foreign corporation whose gross income includes income on which the tax is limited by tax convention.

§ 1.895 Statutory provisions; income derived by a foreign central bank of issue from obligations of the United States.

SEC. 895. Income derived by a foreign central bank of issue from obligations of the United States. Income derived by a foreign central bank of issue from obligations of the United States owned by such foreign central

bank of issue shall not be included in gross income and shall be exempt from taxation under this subtitle unless such obligations are held for, or used in connection with, the conduct of commercial banking functions or other commercial activities.

[Sec. 895 as added by sec. 1, Act of May 4, 1961 (Public Law 87-29, 75 Stat. 64)] (T.D. 6636, 28 F.R. 1763, Feb. 26, 1963] § 1.895-1 Income derived by a foreign central bank of issue from obligations of the United States.

(a) In general. Income from obligations of the United States derived by a foreign central bank of issue, in a taxable year beginning after December 31, 1960, is excluded from gross income of such bank if the bank is the owner of the obligations and does not hold or use the obligations in connection with the conduct of a commercial banking function or other commercial activity.

(b) Foreign central bank of issue. A foreign central bank of issue is a bank which is by law or government sanction the principal authority, other than the government itself, issuing instruments intended to circulate as currency. Such banks are generally the custodians of the banking reserves of their countries. See also paragraph (a)(3) of § 1.861-2. The exclusion applies to an instrumentality that is separate from a foreign government, whether or not owned in whole or in part by a foreign government. For example, foreign banks organized along the lines of, and performing functions similar to, the Federal Reserve System would qualify as central banks of issue.

(c) Ownership of United States obligations. The exclusion does not apply if the obligations of the United States from which income is derived are not owned by the foreign central bank of issue. Obligations held as agent, custodian, trustee, or in any other fiduciary capacity are considered as not owned by the foreign bank.

(d) Commercial banking function or other commercial activity. The exemption applies only to obligations of the United States held in connection with a central banking function and not in connection with commercial activities. In the absence of knowledge that a foreign central bank of issue is operating without the scope of the exclusion granted by section 895, a withholding agent (see paragraph (a) of § 1.1465–1) may accept as a basis for exemption from withhold

ing on obligations of the United States held in custody by it a certification by a foreign bank that it is a central bank of issue, is the owner of obligations of the United States held for the account of such bank, will be the owner of obligations of the United States thereafter deposited to such account, and does not and will not hold or use such obligations in connection with the conduct of a commercial banking function or other commercial activity.

(e) Other exclusions. See section 861 and § 1.861-2 for rules relating to income from bank deposits and income from bankers' acceptances. See section 892 and § 1.892-1 for rules relating to the income of foreign governments. [T.D. 6636, 28 F.R. 1764, Feb. 26, 1963] INCOME

FROM SOURCES WITHOUT THE
UNITED STATES

FOREIGN TAX CREDIT

§ 1.901 Statutory provisions; taxes of foreign countries and of possessions of the United States.

SEC. 901. Taxes of foreign countries and of possessions of the United States (a) Allowance of credit. If the taxpayer chooses to have the benefits of this subpart, the tax imposed by this chapter shall, subject to the applicable limitation of section 904, be credited with the amounts provided in the applicable paragraph of subsection (b) plus, in the case of a corporation, the taxes deemed to have been paid under sections 902 and 960. Such choice for any taxable year may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for such taxable year. The credit shall not be allowed against the tax imposed by section 531 (relating to the tax on accumulated earnings), against the additional tax imposed for the taxable year under section 1333 (relating to war loss recoveries), or against the personal holding company tax imposed by section 541.

(b) Amount allowed. Subject to the applicable limitation of section 904, the following amounts shall be allowed as the credit under subsection (a):

(1) Citizens and domestic corporations. In the case of a citizen of the United States and of a domestic corporation, the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States; and

(2) Resident of the United States or Puerto Rico. In the case of a resident of the United States and in the case of an individual who is a bona fide resident of Puerto Rico during the entire taxable year, the

amount of any such taxes paid or accrued during the taxable year to any possession of the United States; and

(3) Alien resident of the United States or Puerto Rico. In the case of an alien resident of the United States and in the case of an alien individual who is a bona fide resident of Puerto Rico during the entire taxable year, the amount of any such taxes paid or accrued during the taxable year to any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country; and

(4) Partnerships and estates. In the case of any individual described in paragraph (1), (2), or (3), who is a member of a partnership or a beneficiary of an estate or trust, the amount of his proportionate share of the taxes (described in such paragraph) of the partnership or the estate or trust paid or accrued during the taxable year to a foreign country or to any possession of the United States, as the case may be.

(c) Corporations treated as foreign. For purposes of this subpart, the following corporations shall be treated as foreign corporations:

(1) A corporation entitled to the benefits of section 931, by reason of receiving a large percentage of its gross income from sources within a possession of the United States; and (2) A corporation organized under the China Trade Act, 1922 (15 U. S. C., chapter 4), and entitled to the deduction provided in section 941.

(d) Cross reference. (1) For deductions of income, war profits, and excess profits taxes paid to a foreign country or a possession of the United States see sections 164 and 275.

(2) For right of each partner to make election under this section, see section 703 (b).

(3) For right of estate or trust to the credit for taxes imposed by foreign countries and possessions of the United States under this section, see section 642 (a) (2).

(4) For reduction of credit for failure of a United States person to furnish certain information with respect to a foreign corporation controlled by him, see section 6033. [Sec. 901 as amended by sec. 3 (a) and (b), Act of Sept. 14, 1960 (Pub. Law 86-780, 74 Stat. 1013); secs. 9(d) (3) and 12(b) (1), Rev. Act 1962 (76 Stat. 1001, 1031); sec. 207, Rev. Act 1964 (78 Stat. 42)]

[T.D. 6500, 25 F.R. 11910, Nov. 26, 1960, as amended by T.D. 6780, 29 FR. 18148, Dec. 22, 1964; T.D. 6789, 29 F.R. 19241, Dec. 31, 1964; T.D. 6795, 30 F.R. 934, Jan. 29, 1965; T.D. 6805, 30 F.R. 3209, Mar. 9, 1965]

§ 1.901-1 Allowance of credit for taxes. (a) In general. Citizens of the United States, domestic corporations, and certain aliens resident in the United

States or Puerto Rico may choose to claim a credit, as provided in section 901, against the tax imposed by chapter 1 of the Code for taxes paid or accrued to foreign countries and possessions of the United States, subject to the conditions prescribed in the following subparagraphs:

(1) Citizen of the United States. A citizen of the United States, whether resident or nonresident, may claim a credit for (i) the amount of any income, war profits, and excess profits taxes paid or accrued (or deemed paid or accrued under section 905(b)) during the taxable year to any foreign country or to any possession of the United States; and (ii) his share of any such taxes of a partnership of which he is a member, or of an estate or trust of which he is a beneficiary.

(2) Domestic corporation. A domestic corporation may claim a credit for (1) the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country, or to any possession of the United States; and (ii) the taxes deemed to have been paid or accrued under section 902, 905(b), or 960.

(3) Alien resident of the United States or Puerto Rico. An alien resident of the United States, or an alien individual who is a bona fide resident of Puerto Rico during the entire taxable year, may claim a credit for

(1) The amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any possession of the United States;

(ii) The amount of any such taxes paid or accrued (or deemed paid or accrued under section 905(b)) during the taxable year to any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country; and

(11) His share of any such taxes of a partnership of which he is a member, or of an estate or trust of which he is & beneficiary, paid or accrued (or deemed paid or accrued under section 905(b)) during the taxable year,

(a) To any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country, or