I.R.C. § 924(a) In General [Repealed] —
Except as otherwise provided in this section, for purposes of this subpart, the
term “foreign trading gross receipts” means the gross receipts of any FSC which are—
I.R.C. § 924(a)(1) —
from the sale, exchange, or other disposition of export property,
I.R.C. § 924(a)(2) —
from the lease or rental of export property for use by the lessee outside the United
States,
I.R.C. § 924(a)(3) —
for services which are related and subsidiary to—
I.R.C. § 924(a)(3)(A) —
any sale, exchange, or other disposition of export property by such corporation,
or
I.R.C. § 924(a)(3)(B) —
any lease or rental of export property described in paragraph (2) by such corporation,
I.R.C. § 924(a)(4) —
for engineering or architectural services for construction projects located (or proposed
for location)
outside the United States, or
I.R.C. § 924(a)(5) —
for the performance of managerial services for an unrelated FSC or DISC in furtherance
of the production of foreign trading gross receipts described in paragraph (1), (2),
or (3).
Paragraph (5) shall not apply to a FSC for any taxable
year unless at least 50 percent of its gross receipts for such taxable
year is derived from activities described in paragraph (1), (2), or (3).
I.R.C. § 924(b) Foreign Management And Foreign Economic Process Requirements
[Repealed]
I.R.C. § 924(b)(1) In General —
Except as provided in paragraph (2)—
I.R.C. § 924(b)(1)(A) —
a FSC shall be treated as having foreign trading gross receipts for the taxable year
only if the management of such corporation during such taxable year takes place outside
the United States as required by subsection (c), and
I.R.C. § 924(b)(1)(B) —
a FSC has foreign trading gross receipts from any transaction only if economic processes
with respect to such transaction take place outside the United States as required
by subsection (d).
I.R.C. § 924(b)(2) Exception For Small FSC
I.R.C. § 924(b)(2)(B) Limitation On Amount Of Foreign Trading Gross Receipts Of Small FSC Taken Into Account
I.R.C. § 924(b)(2)(B)(i) In General —
Any foreign trading gross receipts of a small FSC for the taxable year which exceed
$5,000,000 shall not be taken into account in determining the exempt foreign trade
income of such corporation and shall not be taken into account under any other provision
of this subpart.
I.R.C. § 924(b)(2)(B)(ii) Allocation Of Limitation —
If the foreign trading gross receipts of a small FSC exceed the limitation of clause
(i), the corporation may allocate such limitation among such gross receipts in such
manner as it may select (at such time and in such manner as may be prescribed in
regulations).
I.R.C. § 924(b)(2)(B)(iii) Receipts Of Controlled Group Aggregated —
For purposes of applying clauses (i) and (ii), all small FSC's which are members
of the same controlled group of corporations shall be treated as a single corporation.
I.R.C. § 924(b)(2)(B)(iv) Allocation Of Limitation Among Members Of Controlled Group —
The limitation under clause (i) shall be allocated among the foreign trading gross
receipts of small FSC's which are members of the same controlled group of corporations
in a manner provided in regulations prescribed by the Secretary.
I.R.C. § 924(c) Requirement That FSC Be Managed Outside The United States [Repealed] —
The management of a FSC meets the requirements of this subsection for the taxable
year if—
I.R.C. § 924(c)(1) —
all meetings of the board of directors of the corporation, and all meetings of the
shareholders of the corporation, are outside the United States,
I.R.C. § 924(c)(2) —
the principal bank account of the corporation is maintained in a foreign country
which meets the requirements of section 927(e)(3) or in a possession of the United
States at all times during the taxable year, and
I.R.C. § 924(c)(3) —
all dividends, legal and accounting fees, and salaries of officers and members of
the board of directors of the corporation disbursed during the taxable year are disbursed
out of bank accounts of the corporation maintained outside the United States.
I.R.C. § 924(d) Requirement That Economic Processes Take Place Outside The United States [Repealed]
I.R.C. § 924(d)(1) In General —
The requirements of this subsection are met with respect to the gross receipts of
a FSC derived from any transaction if—
I.R.C. § 924(d)(1)(A) —
such corporation (or any person acting under a contract with such corporation) has
participated outside the United States in the solicitation (other than advertising),
the negotiation, or the making of the contract relating to such transaction, and
I.R.C. § 924(d)(1)(B) —
the foreign direct costs incurred by the FSC attributable to the transaction equal
or exceed 50 percent of the total direct costs attributable to the transaction.
I.R.C. § 924(d)(2) Alternative 85-Percent Test —
A corporation shall be treated as satisfying the requirements of paragraph (1)(B)
with respect to any transaction if, with respect to each of at least 2 paragraphs
of subsection (e), the foreign direct costs incurred by such corporation attributable
to activities described in such paragraph equal or exceed 85 percent of the total
direct costs attributable to activities described in such paragraph.
I.R.C. § 924(d)(3) Definitions —
For purposes of this subsection—
I.R.C. § 924(d)(3)(A) Total Direct Costs —
The term “total direct costs” means, with respect to any transaction, the total
direct costs incurred by the FSC attributable to activities described in subsection
(e) performed at any location by the FSC or any person acting under a contract with
such FSC.
I.R.C. § 924(d)(3)(B) Foreign Direct Costs —
The term “foreign direct costs” means, with respect to any transaction, the portion
of the total direct costs which are attributable to activities performed outside
the United States.
I.R.C. § 924(d)(4) Rules For Commissions, Etc. —
The Secretary shall prescribe such regulations as may be necessary to carry out
the purposes of this subsection and subsection
(e) in the case of commissions, rentals, and furnishing of services.
I.R.C. § 924(e) Activities Relating To Disposition Of Export Property [Repealed] —
The activities referred to in subsection (d) are—
I.R.C. § 924(e)(1) —
advertising and sales promotion,
I.R.C. § 924(e)(2) —
the processing of customer orders and the arranging for delivery of the export property,
I.R.C. § 924(e)(3) —
transportation from the time of acquisition by the FSC (or, in the case of a commission
relationship, from the beginning of such relationship for such transaction) to the
delivery to the customer,
I.R.C. § 924(e)(4) —
the determination and transmittal of a final invoice or statement of account and
the receipt of payment, and
I.R.C. § 924(e)(5) —
the assumption of credit risk.
I.R.C. § 924(f) Certain Receipts Not Included In Foreign Trading Gross Receipts
[Repealed]
I.R.C. § 924(f)(1) Certain Receipts Excluded On Basis Of Use; Subsidized Receipts And Receipts From Related
Parties Excluded —
The term “foreign trading gross receipts” shall not include receipts of a FSC from
a transaction if—
I.R.C. § 924(f)(1)(A) —
the export property or services—
I.R.C. § 924(f)(1)(A)(i) —
are for ultimate use in the United States, or
I.R.C. § 924(f)(1)(A)(ii) —
are for use by the United States or any instrumentality thereof and such use of export
property or services is required by law or regulation,
I.R.C. § 924(f)(1)(B) —
such transaction is accomplished by a subsidy granted by the United States or any
instrumentality thereof, or
I.R.C. § 924(f)(1)(C) —
such receipts are from another FSC which is a member of the same controlled group
of corporations of which such corporation is a member.
In the case of gross receipts of a FSC from a transaction involving any property,
subparagraph (C) shall not apply if such FSC (and all other FSC's which are members
of the same controlled
group and which receive gross receipts from a transaction involving such property)
do not use the pricing rules under paragraph (1) of section 925(a) (or the corresponding
provisions of the regulations prescribed under section 925(b))
with respect to any transaction involving such property.
I.R.C. § 924(f)(2) Investment Income; Carrying Charges —
The term “foreign trading gross receipts” shall not include any investment income
or carrying charges.
(Added Pub. L. 98-369, div. A, title VIII, 801(a), July 18, 1984, 98 Stat. 987, and amended Pub. L. 99-514, title XVIII, 1876(e)(2),
(l), Oct. 22, 1986, 100 Stat. 2899, 2901; repealed by Pub. L. 106-519, Sec. 2, Nov. 15, 2000.)
BACKGROUND NOTES
AMENDMENTS
2000--Sec. 924. Pub. L. 106-519, 2, repealed Sec. 924.
1986--Subsec. (c)(2). Pub. L. 99-514, 1876(e)(2), amended par. (2) generally. Prior to amendment, par. (2) read as follows:
“the principal bank account of the corporation is maintained outside the United States
at all times during the taxable year, and”.
Subsec. (f)(1). Pub. L. 99-514, 1876(l), inserted at end “In the case of gross receipts of a FSC from a transaction
involving any property, subparagraph (C) shall not apply if such FSC (and all other
FSC's which are members of the same controlled group and which receive gross receipts
from a transaction involving such property) do not use the pricing rules under paragraph
(1) of section 925(a) (or the corresponding provisions of the regulations prescribed
under section 925(b)) with respect to any transaction involving such property.”
EFFECTIVE DATE OF REPEAL
Section 5 of Pub. L. 106-519 provided:
“(a) IN GENERAL.--The amendments made by this Act shall apply to transactions after
September 30, 2000.
“(b) NO NEW FSCs; TERMINATION OF INACTIVE FSCs.--
“(1) No NEW FSCS.-- No corporation may elect after September 30, 2000, to be a FSC
(as defined in section 922 of the Internal Revenue Code of 1986, as in effect before the amendments made by this Act).
“(2) TERMINATION OF INACTIVE FSCS.-- If a FSC has no foreign trade income (as defined
in section 923(b) of such Code, as so in effect) for any period of 5 consecutive taxable
years beginning after December 31, 2001, such FSC shall cease to be treated as a FSC
for purposes of such Code for any taxable year beginning after such period.
“(c) TRANSITION PERIOD FOR EXISTING FOREIGN SALES CORPORATIONS.--
Editor's Note: Sec. 513(a) of Pub. L. 109-222 amended Sec. 5(c)(1)
of Pub. L. 106-519, effective on the date of the enactment of Pub. L. 109-222 [Enacted: May 17, 2006]. Before amendment, Sec. 5(c)(1) read as follows:
“(1) IN GENERAL.-- In the case of a FSC (as so defined) in existence on September
30, 2000, and at all times, thereafter, the amendments made by this Act shall not
apply to any transaction in the ordinary course of trade or business involving a FSC
which occurs--
“(A) before January 1, 2002; or
“(B) after December 31, 2001, pursuant to a binding contract
“(i) which is between the FSC (or any related person)
and any person which is not a related person; and
“(ii) which is in effect on September 30, 2000, and at all times thereafter.
“For purposes of this paragraph, a binding contract shall include a purchase option,
renewal option, or replacement option which is included in such contract and which
is enforceable against the seller or lessor.
Editor's Note: Sec. 513(a) of Pub. L. 109-222 amended Sec. 5(c)(1)
of Pub. L. 106-519, effective May 17, 2006, to read as follows:
“(1) IN GENERAL.-- In the case of a FSC (as so defined) in existence on September
30, 2000, and at all times, thereafter, the amendments made by this Act shall not
apply to any transaction in the ordinary course of trade or business involving a FSC
which occurs before January 1, 2002.
“(2) ELECTION TO HAVE AMENDMENTS APPLY EARLIER.--
A taxpayer may elect to have the amendments made by this Act apply to any transaction
by a FSC or any related person to which such amendments would apply but for the application
of paragraph (1). Such election shall be effective for the tmxable year for which
made and all subsequent taxable years, and, once made, may be revoked only with the
consent of the Secretary of the Treasury.
“(3) EXCEPTION FOR OLD EARNINGS AND PROFITS OF CERTAIN CORPORATIONS.--
“(A) IN GENERAL.-- In the case of a foreign corporation to which this paragraph applies--
“(i) earnings and profits of such corporation accumulated in taxable years ending
before October 1, 2000, shall not be included in the gross income of the persons holding
stock in such corporation by reason of section 943(e)(4)(B)(i), and
“(ii) rules similar to the rules of clauses (ii),
(iii), and (iv) of section 953(d)(4)(B) shall apply with respect to such earnings
and profits.
“The preceding sentence shall not apply to earnings and profits acquired in a transaction
after September 30, 2000, to which section 381 applies unless the distributor or transferor
corporation was immediately before the transaction a foreign corporation to which
this paragraph applies.
“(B) EXISTING FSCS.--This paragraph shall apply to any controlled foreign corporation
(as defined in section 957)
if--
“(i) such corporation is a FSC (as so defined)
in existence on September 30, 2000.
“(ii) such corporation is eligible to make the election under section 943(e) by reason
of being described in paragraph
(2)(B) of such section, and
“(iii) such corporation makes such election not later than for its first taxable year
beginning after December 31, 2001
“(C) OTHER CORPORATIONS.--This paragraph shall apply to any controlled foreign corporation
(as defined in section 957), and such corporation shall (notwithstanding any provision
of section 943(e)) be treated as an applicable foreign corporation for purposes of
section 943(e), if--
“(i) such corporation is in existence on September 30, 2000,
“(ii) as of such date, such corporation is wholly owned (directly or indirectly) by
a domestic corporation (determined without regard to any election under section 943(e)),
“(iii) for each of the 3 taxable years preceding the first taxable year to which the
election under section 943(e)
by such controlled foreign corporation applies--
“(I) all of the gross income of such corporation is subpart F income (as defined in
section 952), including by reason of section 954(b)(3)(B), and
“(II) in the ordinary course of such corporation's trade or business, such corporation
regularly sold (or paid commissions)
to a FSC which on September 30, 2000, was a related person to such corporation,
“(iv) such corporation has never made an election under section 922(a)(2) (as in effect
before the date of the enactment of this paragraph) to be treated as a FSC, and
“(v) such corporation makes the election under section 943(e) not later than for its
first taxable year beginning after December 31, 2001.
“The preceding sentence shall cease to apply as of the date that the domestic corporation
referred to in clause (ii)
ceases to wholly own (directly or indirectly) such controlled foreign corporation.
“(4) RELATED PERSON.--For purposes of this subsection, the term related person has
the meaning given to such term by section 943(b)(3).
“(5) SECTION REFERENCES.--Except as otherwise expressly provided, any reference in
this subsection to a section or other provision shall be considered to be a reference
to a section or other provision of the Internal Revenue Code of 1986, as amended by
this Act.
“(d) SPECIAL RULES RELATING TO LEASING TRANSACTIONS.--
“(1) SALES INCOME.--If foreign trade income in connection with the lease or rental
of property described in section 927(a)(1)(B) of such Code (as in effect before the
amendments made by this Act) is treated as exempt foreign trade income for purposes
of section 921(a) of such Code (as so in effect), such property shall be treated as
property described in section 941(c)(1)(B) of such Code
(as added by this Act) for purposes of applying section 941(c)(2)
of such Code (as so added) to any subsequent transaction involving such property to
which the amendments made by this Act apply.
“(2) LIMITATION ON USE OF GROSS RECEIPTS METHOD.--If any person computed its foreign
trade income from any transaction with respect to any property on the basis of a transfer
price determined under the method described in section 925(a)(1) of such Code (as
in effect before the amendments made by this Act), then the qualifying foreign trade
income (as defined in section 941(a) of such Code, as in effect after such amendment)
of such person (or any related person)
with respect to any other transaction involving such property (and to which the amendments
made by this Act apply) shall be zero.”
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1876(e)(2) of Pub. L. 99-514 provided that the amendment made by section 1876(e)(2) of Pub. L. 99-514 is effective for periods after Mar. 28, 1985.
Amendment by section 1876(l) of Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the
Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE
Section applicable to transactions after Dec. 31, 1984, in taxable years ending after
such date, with a special rule for application of subsecs. (c) and (d) for certain
contracts, see section 805(a)(1) and (2) of Pub. L. 98-369, set out as a note under section 921 of this title.
