26 U.S.C. § 904: Limitation on credit

The total amount of the credit taken under section 901(a) shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer’s taxable income from sources without the United States (but not in excess of the taxpayer’s entire taxable income) bears to his entire taxable income for the same taxable year. For purposes of subsection (a), the taxable income in the case of an individual, estate, or trust shall be computed without any deduction for personal exemptions under section 151 or 642(b). Taxable income from sources outside the United States shall include gain from the sale or exchange of capital assets only to the extent of foreign source capital gain net income. in lieu of applying subparagraph (A), the taxable income from sources outside the United States shall include gain from the sale or exchange of capital assets only in an amount equal to foreign source capital gain net income reduced by the rate differential portion of foreign source net capital gain, the entire taxable income shall include gain from the sale or exchange of capital assets only in an amount equal to capital gain net income reduced by the rate differential portion of net capital gain, and for purposes of determining taxable income from sources outside the United States, any net capital loss (and any amount which is a short-term capital loss under section 1212(a)) from sources outside the United States to the extent taken into account in determining capital gain net income for the taxable year shall be reduced by an amount equal to the rate differential portion of the excess of net capital gain from sources within the United States over net capital gain. The Secretary may by regulations modify the application of this paragraph and paragraph (3) to the extent necessary to properly reflect any capital gain rate differential under section 1(h) and the computation of net capital gain. capital gain net income from sources without the United States, or capital gain net income. net capital gain from sources without the United States, or net capital gain. The term “gain from the sale or exchange of capital assets” includes any gain so treated under section 1231. There is a capital gain rate differential for any year if subsection (h) of section 1 applies to such taxable year. the highest rate of tax set forth in subsection (a), (b), (c), (d), or (e) of section 1 (whichever applies), over the alternative rate of tax determined under section 1(h), bears to that rate referred to in subclause (I). the foreign-source portion of any dividend received from such foreign corporation, and income (other than amounts includible under section 951(a)(1) or 951A(a)) with respect to stock of such specified 10-percent owned foreign corporation, or such stock to the extent income with respect to such stock is other than amounts includible under section 951(a)(1) or 951A(a). any deduction allowed under section 250(a)(1)(B) (and any deduction allowed under section 164(a)(3) for taxes imposed on amounts described in section 250(a)(1)(B)) to such income, no amount of interest expense or research and experimental expenditures to such income, and any other deduction to such income only if such deduction is directly allocable to such income. which is produced in the United States, which is for use outside the United States, and to which the third sentence of section 863(b) applies, and is attributable (determined under rules similar to the rules of section 864(c)(5)) to such office or other fixed place of business, Any amount by which all taxes paid or accrued to foreign countries or possessions of the United States for any taxable year for which the taxpayer chooses to have the benefits of this subpart exceed the limitation under subsection (a) shall be deemed taxes paid or accrued to foreign countries or possessions of the United States in the first preceding taxable year and in any of the first 10 succeeding taxable years, in that order and to the extent not deemed taxes paid or accrued in a prior taxable year, in the amount by which the limitation under subsection (a) for such preceding or succeeding taxable year exceeds the sum of the taxes paid or accrued to foreign countries or possessions of the United States for such preceding or succeeding taxable year and the amount of the taxes for any taxable year earlier than the current taxable year which shall be deemed to have been paid or accrued in such preceding or subsequent taxable year (whether or not the taxpayer chooses to have the benefits of this subpart with respect to such earlier taxable year). Such amount deemed paid or accrued in any year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions of the United States. This subsection shall not apply to taxes paid or accrued with respect to amounts described in subsection (d)(1)(A). any amount includible in gross income under section 951A (other than passive category income), foreign branch income, passive category income, and general category income. The term “passive category income” means passive income and specified passive category income. The term “general category income” means income other than income described in paragraph (1)(A), foreign branch income, and passive category income. Except as otherwise provided in this subparagraph, the term “passive income” means any income received or accrued by any person which is of a kind which would be foreign personal holding company income (as defined in section 954(c)). Except as provided in clause (iii), subparagraph (E)(ii), or paragraph (3)(H), the term “passive income” includes any amount includible in gross income under section 1293 (relating to certain passive foreign investment companies). any export financing interest, and any high-taxed income. In determining whether any income is of a kind which would be foreign personal holding company income, the rules of section 864(d)(6) shall apply only in the case of income of a controlled foreign corporation. dividends from a DISC or former DISC (as defined in section 992(a)) to the extent such dividends are treated as income from sources without the United States, and distributions from a former FSC (as defined in section 922) out of earnings and profits attributable to foreign trade income (within the meaning of section 923(b)) or interest or carrying charges (as defined in section 927(d)(1)) derived from a transaction which results in foreign trade income (as defined in section 923(b)). a member of a financial services group, and any other person if such person is predominantly engaged in the active conduct of a banking, insurance, financing, or similar business. United States corporations, or controlled foreign corporations in which such United States corporations own, directly or indirectly, at least 80 percent of the total voting power and value of the stock. The Secretary shall by regulation specify for purposes of this subparagraph the treatment of financial services income received or accrued by partnerships and by other pass-thru entities which are not members of a financial services group. described in clause (ii), or passive income (determined without regard to subparagraph (B)(iii)(II)). derived in the active conduct of a banking, financing, or similar business, derived from the investment by an insurance company of its unearned premiums or reserves ordinary and necessary for the proper conduct of its insurance business, or of a kind which would be insurance income as defined in section 953(a) determined without regard to those provisions of paragraph (1)(A) of such section which limit insurance income to income from countries other than the country in which the corporation was created or organized. a specified 10-percent owned foreign corporation (as defined in section 245A(b)), or a passive foreign investment company (as defined in section 1297(a)) with respect to which the taxpayer meets the stock ownership requirements of section 902(a) (or, for purposes of applying paragraphs (3) and (4), the requirements of section 902(b)). If any foreign corporation is a noncontrolled 10-percent owned foreign corporation with respect to the taxpayer, any inclusion under section 1293 with respect to such corporation shall be treated as a dividend from such corporation. the foreign income taxes paid or accrued by the taxpayer with respect to such income, and the foreign income taxes deemed paid by the taxpayer with respect to such income under section 902 1 or 960, which is manufactured, produced, grown, or extracted in the United States by the taxpayer or a related person, and not more than 50 percent of the fair market value of which is attributable to products imported into the United States. In the case of taxable years beginning after December 31, 2006 , tax imposed under the law of a foreign country or possession of the United States on an amount which does not constitute income under United States tax principles shall be treated as imposed on income described in paragraph (1)(D). In the case of taxes paid or accrued in taxable years beginning after December 31, 2004 , and before January 1, 2007 , a taxpayer may elect to treat tax imposed under the law of a foreign country or possession of the United States on an amount which does not constitute income under United States tax principles as tax imposed on income described in subparagraph (C) or (I) of paragraph (1). Any such election shall apply to the taxable year for which made and all subsequent taxable years described in subclause (I) unless revoked with the consent of the Secretary. For purposes of this paragraph, the term “related person” has the meaning given such term by section 954(d)(3), except that such section shall be applied by substituting “the person with respect to whom the determination is being made” for “controlled foreign corporation” each place it appears. The term “foreign branch income” means the business profits of such United States person which are attributable to 1 or more qualified business units (as defined in section 989(a)) in 1 or more foreign countries. For purposes of the preceding sentence, the amount of business profits attributable to a qualified business unit shall be determined under rules established by the Secretary. Such term shall not include any income which is passive category income. taxes carried from any taxable year beginning before January 1, 2007 , to any taxable year beginning on or after such date, with respect to any item of income, shall be treated as described in the subparagraph of paragraph (1) in which such income would be described were such taxes paid or accrued in a taxable year beginning on or after such date, and the Secretary may by regulations provide for the allocation of any carryback of taxes with respect to income from a taxable year beginning on or after January 1, 2007 , to a taxable year beginning before such date for purposes of allocating such income among the separate categories in effect for the taxable year to which carried. Except as otherwise provided in this paragraph, dividends, interest, rents, and royalties received or accrued by the taxpayer from a controlled foreign corporation in which the taxpayer is a United States shareholder shall not be treated as passive category income. Any amount included in gross income under section 951(a)(1)(A) shall be treated as passive category income to the extent the amount so included is attributable to passive category income. Any interest, rent, or royalty which is received or accrued from a controlled foreign corporation in which the taxpayer is a United States shareholder shall be treated as passive category income to the extent it is properly allocable (under regulations prescribed by the Secretary) to passive category income of the controlled foreign corporation. the portion of the earnings and profits attributable to passive category income, to the total amount of earnings and profits. If a controlled foreign corporation meets the requirements of section 954(b)(3)(A) (relating to de minimis rule) for any taxable year, for purposes of this paragraph, none of its foreign base company income (as defined in section 954(a) without regard to section 954(b)(5)) and none of its gross insurance income (as defined in section 954(b)(3)(C)) for such taxable year shall be treated as passive category income, except that this sentence shall not apply to any income which (without regard to this sentence) would be treated as financial services income. Solely for purposes of applying subparagraph (D), passive income of a controlled foreign corporation shall not be treated as passive category income if the requirements of section 954(b)(4) are met with respect to such income. In determining whether any income of a controlled foreign corporation is passive category income, subclause (II) of paragraph (2)(B)(iii) shall not apply. Any income of the taxpayer which is treated as passive category income under this paragraph shall be so treated notwithstanding any provision of paragraph (2); except that the determination of whether any amount is high-taxed income shall be made after the application of this paragraph. For purposes of this paragraph, the term “dividend” includes any amount included in gross income in section 951(a)(1)(B). Any amount included in gross income under section 78 to the extent attributable to amounts included in gross income in section 951(a)(1)(A) shall not be treated as a dividend but shall be treated as included in gross income under section 951(a)(1)(A). a passive foreign investment company is a controlled foreign corporation, and the taxpayer is a United States shareholder in such controlled foreign corporation, the portion of earnings and profits attributable to income described in such subparagraph, to the total amount of earnings and profits. In the case of any distribution from a controlled foreign corporation to a United States shareholder, rules similar to the rules of subparagraph (A) shall apply in determining the extent to which earnings and profits of the controlled foreign corporation which are attributable to dividends received from a noncontrolled 10-percent owned foreign corporation may be treated as income in a separate category. The rules of section 316 shall apply. The Secretary may prescribe regulations regarding the treatment of distributions out of earnings and profits for periods before the taxpayer’s acquisition of the stock to which the distributions relate. If the Secretary determines that the proper subparagraph of paragraph (1) in which a dividend is described has not been substantiated, such dividend shall be treated as income described in paragraph (1)(C). Rules similar to the rules of paragraph (3)(F) shall apply for purposes of this paragraph. Rules similar to subparagraph (A) also shall apply to any carryforward under subsection (c) from a taxable year beginning before January 1, 2003 , of tax allocable to a dividend from a noncontrolled 10-percent owned foreign corporation with respect to the taxpayer. The Secretary may by regulations provide for the allocation of any carryback of tax allocable to a dividend from a noncontrolled 10-percent owned foreign corporation from a taxable year beginning on or after January 1, 2003 , to a taxable year beginning before such date for purposes of allocating such dividend among the separate categories in effect for the taxable year to which carried. The term “controlled foreign corporation” has the meaning given such term by section 957 (taking into account section 953(c)). The term “United States shareholder” has the meaning given such term by section 951(b) (taking into account section 953(c)). without regard to any treaty obligation of the United States, any item of income would be treated as derived from sources within the United States, under a treaty obligation of the United States, such item would be treated as arising from sources outside the United States, and the taxpayer chooses the benefits of such treaty obligation, This paragraph shall not apply to any item of income to which subsection (h)(10) or section 865(h) applies. The Secretary may issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance which provides that related items of income may be aggregated for purposes of this paragraph. for the application of paragraph (3) and subsection (f)(5) in the case of income paid (or loans made) through 1 or more entities or between 2 or more chains of entities, preventing the manipulation of the character of income the effect of which is to avoid the purposes of this subsection, and providing that rules similar to the rules of paragraph (3)(C) shall apply to interest, rents, and royalties received or accrued from entities which would be controlled foreign corporations if they were foreign corporations. the amount of such loss (to the extent not used under this paragraph in prior taxable years), or 50 percent (or such larger percent as the taxpayer may choose) of the taxpayer’s taxable income from sources without the United States for such succeeding taxable year, any net operating loss deduction allowable for such year under section 172(a), and foreign expropriation loss for such year, as defined in section 172(h) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), or loss for such year which arises from fire, storm, shipwreck, or other casualty, or from theft, the taxpayer, notwithstanding any other provision of this chapter (other than paragraph (1)), shall be deemed to have received and recognized taxable income from sources without the United States in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer’s adjusted basis in such property or the remaining amount of the overall foreign losses which were not used under paragraph (1) for such taxable year or any prior taxable year, and paragraph (1) shall be applied with respect to such income by substituting “100 percent” for “50 percent”. For purposes of this subsection, the term “disposition” includes a sale, exchange, distribution, or gift of property whether or not gain or loss is recognized on the transfer. Any taxable income recognized solely by reason of subparagraph (A) shall have the same characterization it would have had if the taxpayer had sold or exchanged the property. The Secretary shall prescribe such regulations as he may deem necessary to provide for adjustments to the basis of property to reflect taxable income recognized solely by reason of subparagraph (A). a disposition of property which is not a material factor in the realization of income by the taxpayer, or a disposition of property to a domestic corporation in a distribution or transfer described in section 381(a). This paragraph shall apply to an applicable disposition in the same manner as if it were a disposition of property described in subparagraph (A), except that the exception contained in subparagraph (C)(i) shall not apply. For purposes of clause (i), the term “applicable disposition” means any disposition of any share of stock in a controlled foreign corporation in a transaction or series of transactions if, immediately before such transaction or series of transactions, the taxpayer owned more than 50 percent (by vote or value) of the stock of the controlled foreign corporation. Such term shall not include a disposition described in clause (iii) or (iv), except that clause (i) shall apply to any gain recognized on any such disposition. to which section 351 or 721 applies, or under which the transferor receives stock in a foreign corporation in exchange for the stock in the controlled foreign corporation and the stock received is exchanged basis property (as defined in section 7701(a)(44)), and immediately after which, the transferor owns (by vote or value) at least the same percentage of stock in the controlled foreign corporation (or, if the controlled foreign corporation is not in existence after such transaction or series of transactions, in another foreign corporation stock in 2 which was received by the transferor in exchange for stock in the controlled foreign corporation) as the percentage of stock in the controlled foreign corporation which the taxpayer owned immediately before such transaction or series of transactions. 2 So in original. A disposition shall not be treated as an applicable disposition under clause (ii) if it is part of a transaction or series of transactions in which the taxpayer (or any member of an affiliated group of corporations filing a consolidated return under section 1501 which includes the taxpayer) acquires the assets of a controlled foreign corporation in exchange for the shares of the controlled foreign corporation in a liquidation described in section 332 or a reorganization described in section 368(a)(1). For purposes of this subparagraph, the term “controlled foreign corporation” has the meaning given such term by section 957. For purposes of this subparagraph, ownership of stock shall be determined under the rules of subsections (a) and (b) of section 958. For purposes of this chapter, in the case of amounts of income from sources without the United States which are treated under section 666 (without regard to subsections (b) and (c) thereof if the taxpayer chose to take a deduction with respect to the amounts described in such subsections under section 667(d)(1)(B)) as having been distributed by a foreign trust in a preceding taxable year, that portion of such amounts equal to the amount of any overall foreign loss sustained by the beneficiary in a year prior to the taxable year of the beneficiary in which such distribution is received from the trust shall be treated as income from sources within the United States (and not income from sources without the United States) to the extent that such loss was not used under this subsection in prior taxable years, or in the current taxable year, against other income of the beneficiary. The amount of the separate limitation losses for any taxable year shall reduce income from sources within the United States for such taxable year only to the extent the aggregate amount of such losses exceeds the aggregate amount of the separate limitation incomes for such taxable year. The separate limitation losses for any taxable year (to the extent such losses do not exceed the separate limitation incomes for such year) shall be allocated among (and operate to reduce) such incomes on a proportionate basis. a separate limitation loss from any income category (hereinafter in this subparagraph referred to as “the loss category”) was allocated to income from any other category under subparagraph (B), and the loss category has income for a subsequent taxable year, Any loss from sources in the United States for any taxable year (to the extent such loss does not exceed the separate limitation incomes from such year) shall be allocated among (and operate to reduce) such incomes on a proportionate basis. This subparagraph shall be applied after subparagraph (B). The term “income category” means each separate category of income described in subsection (d)(1). The term “separate limitation income” means, with respect to any income category, the taxable income from sources outside the United States, separately computed for such category. The term “separate limitation loss” means, with respect to any income category, the loss from such category determined under the principles of section 907(c)(4)(B). If any separate limitation loss for any taxable year is allocated against any separate limitation income for such taxable year, except to the extent provided in regulations, rules similar to the rules of paragraph (3) shall apply to any disposition of property if gain from such disposition would be in the income category with respect to which there was such separate limitation loss. the amount of such loss (to the extent not used under this paragraph in prior taxable years), or 50 percent of the taxpayer’s taxable income from sources within the United States for such succeeding taxable year, with respect to any qualified taxable year, the domestic loss for such taxable year to the extent such loss offsets taxable income from sources without the United States for the taxable year or for any preceding qualified taxable year by reason of a carryback, and with respect to any other taxable year, the domestic loss for such taxable year to the extent such loss offsets taxable income from sources without the United States for any preceding qualified taxable year by reason of a carryback. For purposes of subparagraph (A), the term “domestic loss” means the amount by which the gross income for the taxable year from sources within the United States is exceeded by the sum of the deductions properly apportioned or allocated thereto (determined without regard to any carryback from a subsequent taxable year). For purposes of subparagraph (A), the term “qualified taxable year” means any taxable year for which the taxpayer chose the benefits of this subpart. Any income from sources within the United States that is treated as income from sources without the United States under paragraph (1) shall be allocated among and increase the income categories in proportion to the loss from sources within the United States previously allocated to those income categories. For purposes of this paragraph, the term “income category” has the meaning given such term by subsection (f)(5)(E)(i). The Secretary shall prescribe such regulations as may be necessary to coordinate the provisions of this subsection with the provisions of subsection (f). If any pre-2018 unused overall domestic loss is taken into account under paragraph (1) for any applicable taxable year, the taxpayer may elect to have such paragraph applied to such loss by substituting a percentage greater than 50 percent (but not greater than 100 percent) for 50 percent in subparagraph (B) thereof. arises in a qualified taxable year beginning before January 1, 2018 , and has not been used under paragraph (1) for any taxable year beginning before such date. For purposes of this paragraph, the term “applicable taxable year” means any taxable year of the taxpayer beginning after December 31, 2017 , and before January 1, 2028 . section 951(a) (relating to amounts included in gross income of United States shareholders), or section 1293 (relating to current taxation of income from qualified funds). Interest. Dividends. Any amount described in subparagraph (A) of paragraph (1) shall be treated as derived from sources within the United States to the extent such amount is attributable to income of the United States-owned foreign corporation from sources within the United States. is paid or accrued by a United States-owned foreign corporation during any taxable year, is paid or accrued to a United States shareholder (as defined in section 951(b)) or a related person (within the meaning of section 267(b)) to such a shareholder, and is properly allocable (under regulations prescribed by the Secretary) to income of such foreign corporation for the taxable year from sources within the United States, The United States source ratio of any dividend paid or accrued by a United States-owned foreign corporation shall be treated as derived from sources within the United States. the numerator of which is the portion of the earnings and profits for such taxable year from sources within the United States, and the denominator of which is the total amount of earnings and profits for such taxable year. the United States-owned foreign corporation has earnings and profits for such taxable year, and less than 10 percent of such earnings and profits is attributable to sources within the United States. the total combined voting power of all classes of stock of such corporation entitled to vote, or the total value of the stock of such corporation, For purposes of this subsection, the term “dividend” includes any gain treated as a dividend under section 1248. This subsection shall be applied before subsection (f). In the case of any dividend treated as not from sources within the United States under section 861(a)(2)(A), the corporation paying such dividend shall be treated for purposes of this subsection as a United States-owned foreign corporation. any amount derived from a United States-owned foreign corporation would be treated as derived from sources within the United States under this subsection by reason of an item of income of such United States-owned foreign corporation, under a treaty obligation of the United States (applied without regard to this subsection and by treating any amount included in gross income under section 951(a)(1) as a dividend), such amount would be treated as arising from sources outside the United States, and the taxpayer chooses the benefits of this paragraph, Amounts included in gross income under section 951(a)(1) shall be treated as a dividend under subparagraph (A)(ii) only if dividends paid by each corporation (the stock in which is taken into account in determining whether the shareholder is a United States shareholder in the United States-owned foreign corporation), if paid to the United States shareholder, would be treated under a treaty obligation of the United States as arising from sources outside the United States (applied without regard to this subsection). regulations for the application of this subsection in the case of interest or dividend payments through 1 or more entities, and regulations providing that this subsection shall apply to interest paid or accrued to any person (whether or not a United States shareholder). section 1504(b) were applied without regard to the exceptions contained therein, and the constructive ownership rules of section 1563(e) applied for purposes of section 1504(a), the limitation of subsection (a) shall not apply, no taxes paid or accrued by the individual during such taxable year may be deemed paid or accrued under subsection (c) in any other taxable year, and no taxes paid or accrued by the individual during any other taxable year may be deemed paid or accrued under subsection (c) in such taxable year. the entire amount of such individual’s gross income for the taxable year from sources without the United States consists of qualified passive income, the amount of the creditable foreign taxes paid or accrued by the individual during the taxable year does not exceed $300 ($600 in the case of a joint return), and such individual elects to have this subsection apply for the taxable year. such item of income is passive income (as defined in subsection (d)(2)(B) without regard to clause (iii) thereof), and such item of income is shown on a payee statement furnished to the individual. The term “creditable foreign taxes” means any taxes for which a credit is allowable under section 901; except that such term shall not include any tax unless such tax is shown on a payee statement furnished to such individual. The term “payee statement” has the meaning given to such term by section 6724(d)(2). This subsection shall not apply to any estate or trust. For increase of limitation under subsection (a) for taxes paid with respect to amounts received which were included in the gross income of the taxpayer for a prior taxable year as a United States shareholder with respect to a controlled foreign corporation, see section 960(c). The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2006 . Section 904(d)(2)(H)(ii) of the Internal Revenue Code of 1986, as added by subsection (e), shall apply to taxable years beginning after December 31, 2004 .” The amendments made by subsections (a)(1) and (b)(1) [amending this section and section 907 of this title ] shall apply to excess foreign taxes arising in taxable years beginning after the date of the enactment of this Act [ Oct. 22, 2004 ]. The amendments made by subsections (a)(2) and (b)(2) [amending this section and section 907 of this title ] shall apply to excess foreign taxes which (without regard to the amendments made by this section [amending this section and section 907 of this title ]) may be carried to any taxable year ending after the date of the enactment of this Act [ Oct. 22, 2004 ].” Except as provided in this subsection, the amendments made by this section [amending this section and sections 864 and 954 of this title] shall apply to taxable years beginning after December 31, 1986 . Repealed. Pub. L. 101–239, title VII, § 7404(a) , Dec. 19, 1989 , 103 Stat. 2361 .] If a taxpayer incorporated on June 20, 1928 , the principal headquarters of which is in Minneapolis, Minnesota, sustained an overall foreign loss (as defined in section 904(f)(2) of the Internal Revenue Code of 1954 [now 1986]) in taxable years beginning before January 1, 1986 , in connection with 2 separate trades or businesses which the taxpayer had, during 1985, substantially disposed of in tax-free transactions pursuant to section 355 of such Code, then an amount, not to exceed $40,000,000 of foreign source income, which, but for this paragraph, would not be treated as overall limitation income, shall be so treated. For purposes of this paragraph, a taxpayer shall be treated as having substantially disposed of a trade or business if the retained portion of such business had sales of less than 10 percent of the annual sales of such business for taxable years ending in 1985.” only income received or accrued by such corporation after such date shall be taken into account under section 904(g) of the Internal Revenue Code of 1954 [now 1986]; except that paragraph (5) of such section 904(g) shall be applied by taking into account all income received or accrued by such corporation during such taxable year.” only income received or accrued by such corporation after such date shall be taken into account under section 904(d)(3) of the Internal Revenue Code of 1954 [now 1986]; except that subparagraph (C) of such section 904(d)(3) shall be applied by taking into account all income received or accrued by such corporation during such taxable year. The amendment made by subparagraph (A) insofar as it adds clause (iv) to subparagraph (E) of section 904(d)(3) shall take effect on December 31, 1985 . For purposes of such amendment, the rule of the second sentence of clause (i) shall be applied by taking into account December 31, 1985 , in lieu of March 28, 1985 .” only income received or accrued by such foreign corporation after such date of enactment shall be taken into account under section 904(g) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by subsection (a)); except that paragraph (5) of such section 904(g) (relating to exception where small amount of United States source income) shall be applied by taking into account all income received or accrued by such foreign corporation during such taxable year. such interest shall not be taken into account under section 904(g) of the Internal Revenue Code of 1986 (as added by subsection (a)), except that such interest shall be taken into account for purposes of applying paragraph (5) of such section 904(g) (relating to exception where small amount of United States source income). the aggregate amount of interest received or accrued during any taxable year by an applicable CFC on United States affiliate obligations held by such applicable CFC, multiplied by, the numerator of which is the sum of the aggregate principal amount of United States affiliate obligations held by the applicable CFC on March 31, 1984 , but not in excess of the applicable limit, and the denominator of which is the average daily principal amount of United States affiliate obligations held by such applicable CFC during the taxable year. the excess of (I) the aggregate principal amount of CFC obligations which are outstanding on March 31, 1984 , but only with respect to obligations issued before March 8, 1984 , or issued after March 7, 1984 , by the applicable CFC pursuant to a binding commitment in effect on March 7, 1984 , over (II) the average daily outstanding principal amount during the taxable year of the CFC obligations described in subclause (I), and the portion of the equity of such applicable CFC allocable to the excess described in clause (i) (determined on the basis of the debt-equity ratio of such applicable CFC on March 31, 1984 ). which was in existence on March 31, 1984 , and the principal purpose of which on such date consisted of the issuing of CFC obligations (or short-term borrowing from nonaffiliated persons) and lending the proceeds of such obligations (or such borrowing) to affiliates. The term ‘affiliate’ means any person who is a related person (within the meaning of section 482 of the Internal Revenue Code of 1986) to the applicable CFC. The term ‘United States affiliate’ means any United States person which is an affiliate of the applicable CFC. at least 50 percent of the gross income from all sources of such corporation for the 3-year period ending with the close of its last taxable year ending on or before March 31, 1984 , was effectively connected with the conduct of a trade or business within the United States, and at least 50 percent of the gross income from all sources of such corporation for the 3-year period ending with the close of its taxable year preceding the payment of such interest was effectively connected with the conduct of a trade or business within the United States. For purposes of this paragraph, the term ‘United States affiliate obligations’ means any obligation of (and payable by) a United States affiliate. the requirements of clause (i) of [former] section 163(f)(2)(B) of the Internal Revenue Code of 1986 are met with respect to such obligation, and in the case of an obligation issued after December 31, 1982 , the requirements of clause (ii) of such [former] section 163(f)(2)(B) are met with respect to such obligation. For purposes of this paragraph, in the case of any obligation with original issue discount, the principal amount of such obligation as of any day shall be treated as equal to the revised issue price as of such day (as defined in section 1278(a)(4) of the Internal Revenue Code of 1986). the equity of the applicable CFC on March 31, 1984 , and before March 8, 1984 , or after March 7, 1984 , pursuant to a binding commitment in effect on March 7, 1984 . The amendments made by subsection (a) shall not apply to interest on any term obligations held by a foreign corporation on March 7, 1984 . The preceding sentence shall not apply to any United States affiliate obligation (as defined in paragraph (2)(F)) held by an applicable CFC (as defined in paragraph (2)(D)). Any term used in this subsection which is also used in section 904(g) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall have the meaning given such term by such section 904(g). Subsections (a), (b), and (c) of section 904 of the Internal Revenue Code of 1986 shall be applied separately to any amount not treated as income derived from sources within the United States but which (but for the provisions of paragraph (2) or (3) of this subsection) would be so treated under the amendments made by subsection (a). Any such separate application shall be made before any separate application required under section 904(d) of such Code. which is a subsidiary of a domestic corporation which has been engaged in manufacturing for more than 50 years, and September 24, 1979 , denominated in French francs, September 10, 1981 , denominated in Swiss francs, July 14, 1982 , denominated in Swiss francs, and December 1, 1982 , denominated in United States dollars, The amendment made by subsection (a) [amending this section] shall take effect on the date of the enactment of this Act [ July 18, 1984 ]. Interest income received or accrued by a designated payor corporation shall be taken into account for purposes of the amendment made by subsection (a) only in taxable years beginning after the date of the enactment of this Act. Notwithstanding subparagraph (A), the amendment made by subsection (a) shall apply to interest income received or accrued by a designated payor corporation after the date of enactment of this Act if it is attributable to investment in the designated payor corporation after June 22, 1984 . In the case of any designated payor corporation which is not an applicable CFC (as defined in section 121(b)(2)(D) [ section 121(b)(2)(D) of Pub. L. 98–369 , set out above]), any interest received or accrued by such corporation on a term obligation held by such corporation on March 7, 1984 , shall not be taken into account.” to overall foreign losses sustained in taxable years beginning after December 31, 1975 , and to foreign oil related losses sustained in taxable years ending after December 31, 1975 .” Except as provided in paragraphs (2) and (3), the amendments made by this section [amending this section and sections 243, 383, 901, 907, 960, 1351, 1503, 6038, and 6501 of this title] shall apply to taxable years beginning after December 31, 1975 . been engaged in the active conduct of the trade or business of the extraction of minerals (of a character with respect to which a deduction for depletion is allowable under section 613 of such Code) outside the United States or its possessions for less than 5 years preceding the date of enactment of this Act [ Oct. 4, 1976 ], had deductions properly apportioned or allocated to its gross income from such trade or business in excess of such gross income in at least 2 taxable years, 80 percent of its gross receipts are from the sale of such minerals, and made commitments for substantial expansion of such mineral extraction activities, In the case of gross income from sources within a possession of the United States (and the deductions properly apportioned or allocated thereto), the amendments made by this section [amending this section and sections 243, 383, 901, 907, 960, 1351, 1503, 6038, and 6501 of this title] shall apply to taxable years beginning after December 31, 1978 . In the case of a taxpayer to whom paragraph (2) or (3) of this subsection applies, section 904(e) of such Code [ section 904(e) of this title ] shall apply except that ‘ January 1, 1979 ’ shall be substituted for ‘ January 1, 1976 ’ each place it appears therein. If such a taxpayer elects the overall limitation for a taxable year beginning before January 1, 1979 , such section 904(e) shall be applied by substituting ‘the January 1, of the last year for which such taxpayer is on the per-country limitation’ for ‘ January 1, 1976 ’ each place it appears therein.” Except as provided in paragraphs (2), (3), and (5), the amendment made by subsection (a) [amending this section] shall apply to losses sustained in taxable years beginning after December 31, 1975 . The amendment made by subsection (b)(1) [amending section 907 of this title ] shall apply to taxable years beginning after December 31, 1975 . The amendment made by subsection (b)(2) [amending section 907 of this title ] shall apply to losses sustained in taxable years ending after December 31, 1975 . The amendments made by subsection (a) [amending this section] shall not apply to losses on the sale, exchange, or other disposition of bonds, notes, or other evidences of indebtedness issued before May 14, 1976 , by a foreign government or instrumentality thereof for the acquisition of property located in that country or stock of a corporation (created or organized in or under the laws of that foreign country) or indebtedness of such corporation. The amendments made by subsection (a) [amending this section] shall not apply to losses incurred on the loss from stock or indebtedness of a corporation in which the taxpayer owned at least 10 percent of the voting stock and which has sustained losses in 3 out of the last 5 taxable years beginning before January 1, 1976 , which has sustained an overall loss for those 5 years, and with respect to which the taxpayer has terminated or will terminate all operations by reason of sale, liquidation, or other disposition before January 1, 1977 , of such corporation or its assets. If paragraph (3) would apply to a taxpayer but for the fact that the loss is sustained after December 31, 1976 , and if the loss is sustained in a taxable year beginning before January 1, 1979 , the amendments made by subsection (a) [amending this section] shall not apply to such loss to the extent that there was on December 31, 1975 , a deficit in earnings and profits in the corporation from which the loss arose. For purposes of the preceding sentence, there shall be taken into account only earnings and profits of the corporation which (A) were accumulated in taxable years of the corporation beginning after December 31, 1962 , and during the period in which the stock of such corporation from which the loss arose was held by the taxpayer and (B) are attributable to such stock. The amendment made by subsection (a) [amending this section] shall apply to foreign oil related losses sustained in taxable years ending after December 31, 1975 . the taxpayer sustained a loss in a possession of the United States in a taxable year beginning after December 31, 1975 , and before January 1, 1979 , such loss is attributable to a trade or business engaged in by the taxpayer in such possession on January 1, 1976 , and the taxpayer chooses to have the benefits of subpart A of part III of subchapter N apply for such taxable year and section 904(a)(1) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect before the enactment of this Act [ Oct. 4, 1976 ]) applies with respect to such taxable year. In any case to which this paragraph applies, for purposes of determining the liability for tax of the taxpayer for taxable years beginning before January 1, 1979 , section 904(f) of the Internal Revenue Code of 1986 shall not apply with respect to the loss described in subparagraph (A)(i). for purposes of determining the liability for tax of the taxpayer for taxable years beginning after December 31, 1978 , section 904(f) of the Internal Revenue Code of 1986 [subsec. (f) of this section] shall be applied with respect to the loss described in subparagraph (A)(i) under the principles of section 904(a)(1) of such Code (as in effect before the enactment of this Act [ Oct. 4, 1976 ]); but in the case of any taxpayer and any possession, the aggregate amount to which such section 904(f) applies by reason of clause (i) shall not exceed the sum of the net incomes of all affiliated corporations from such possession for taxable years of such affiliated corporations beginning after December 31, 1975 , and before January 1, 1979 . In any case to which this paragraph applies but for the fact that the taxpayer was not engaged in a trade or business in such possession on January 1, 1976 , for purposes of determining the liability for tax of the taxpayer for taxable years beginning before January 1, 1979 ; if section 904(a)(1) of such Code (as in effect before the enactment of this Act [ Oct. 4, 1976 ]) applies with respect to such taxable year, the provisions of section 904(f) of such Code shall be applied with respect to the loss described in subparagraph (A)(i) under the principles of such section 904(a)(1). For purposes of subparagraph (C)(ii), the term ‘affiliated corporation’ means a corporation which, for the taxable year for which the net income is being determined, was not a member of the same affiliated group (within the meaning of section 1504 of the Internal Revenue Code of 1986) as the taxpayer but would have been a member of such group but for the application of subsection (b) of such section 1504.” Any taxes paid or accrued in a taxable year beginning after 1986 may be treated under section 904(c) of the Internal Revenue Code of 1954 as paid or accrued in a taxable year beginning before 1987 only to the extent such taxes would be so treated if the tax imposed by chapter 1 of such Code for the taxable year beginning after 1986 were determined by applying section 1 or 11 of such Code (as the case may be) as in effect on the day before the date of the enactment of this Act [ Oct. 22, 1986 ]. the repeal of the zero bracket amount, and the changes in the treatment of capital gains. Any taxes paid or accrued in a taxable year beginning after 1986 which (after the application of subsection (a)) are treated as paid or accrued in a taxable year beginning before 1987 shall be treated as imposed on income described in section 904(d)(1)(E) of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of this Act [ Oct. 22, 1986 ]). No taxes paid or accrued in a taxable year beginning after 1986 with respect to high withholding tax interest (as defined in section 904(d)(2)(B) of the Internal Revenue Code of 1986 as amended by this Act) may be treated as paid or accrued in a taxable year beginning before 1987.”