26 U.S.C. § 863: Special rules for determining source

Items of gross income, expenses, losses, and deductions, other than those specified in sections 861(a) and 862(a), shall be allocated or apportioned to sources within or without the United States, under regulations prescribed by the Secretary. Where items of gross income are separately allocated to sources within the United States, there shall be deducted (for the purpose of computing the taxable income therefrom) the expenses, losses, and other deductions properly apportioned or allocated thereto and a ratable part of other expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in full as taxable income from sources within the United States. from services rendered partly within and partly without the United States, from the sale or exchange of inventory property (within the meaning of section 865(i)(1)) produced (in whole or in part) by the taxpayer within and sold or exchanged without the United States, or produced (in whole or in part) by the taxpayer without and sold or exchanged within the United States, or derived from the purchase of inventory property (within the meaning of section 865(i)(1)) within a possession of the United States and its sale or exchange within the United States, All transportation income attributable to transportation which begins and ends in the United States shall be treated as derived from sources within the United States. is not described in paragraph (1), and begins or ends in the United States, begins in the United States and ends in a possession of the United States, or begins in a possession of the United States and ends in the United States. the use (or hiring or leasing for use) of a vessel or aircraft, or the performance of services directly related to the use of a vessel or aircraft. if derived by a United States person, shall be sourced in the United States, and if derived by a person other than a United States person, shall be sourced outside the United States. any activity conducted in space, and any activity conducted on or under water not within the jurisdiction (as recognized by the United States) of a foreign country, possession of the United States, or the United States. any activity giving rise to transportation income (as defined in section 863(c)), any activity giving rise to international communications income (as defined in subsection (e)(2)), and any activity with respect to mines, oil and gas wells, or other natural deposits to the extent within the United States or any foreign country or possession of the United States (as defined in section 638). In the case of any United States person, 50 percent of any international communications income shall be sourced in the United States and 50 percent of such income shall be sourced outside the United States. Except as provided in regulations or clause (ii), in the case of any person other than a United States person, any international communications income shall be sourced outside the United States. In the case of any person (other than a United States person) who maintains an office or other fixed place of business in the United States, any international communications income attributable to such office or other fixed place of business shall be sourced in the United States. For purposes of this section, the term “international communications income” includes all income derived from the transmission of communications or data from the United States to any foreign country (or possession of the United States) or from any foreign country (or possession of the United States) to the United States. Except as provided in paragraph (2), the amendments made by this section [enacting section 887 of this title and amending this section and sections 861, 872, and 883 of this title] shall apply to taxable years beginning after December 31, 1986 . The amendments made by subsections (a) and (d) [amending this section and section 861 of this title ] shall not apply to any income attributable to property held by the taxpayer on January 1, 1986 , if such property was first leased by the taxpayer before January 1, 1986 , in a lease to which section 863(c)(2)(B) or 861(e) of the Internal Revenue Code of 1954 [now 1986] (as in effect on the day before the date of the enactment of this Act [ Oct. 22, 1986 ]) applied. In the case of any property described in subparagraph (B), paragraph (2) shall be applied by substituting ‘1987’ for ‘1986’ each place it appears. Property described in this subparagraph consists of 4 ships which are to be leased by the United States Navy and which are the subject of Internal Revenue Service rulings bearing the following dates and which involved the following amount of financing, respectively: “ March 5, 1986 $176,844,000 February 5, 1986 64,567,000 April 22, 1986 64,598,000 May 22, 1986 175,300,000.”