[Code of Federal Regulations]
[Title 26, Volume 9]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.882-2]

[Page 398-399]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.882-2  Income of foreign corporations treated as effectively 
connected with U.S. business.

    (a) Election as to real property income. A foreign corporation which 
during the taxable year derives any income from real property which is 
located in the United States, or derives income from any interest in any 
such real property, may elect, pursuant to section 882(d) and Sec. 
1.871-10, to treat all such income as income which is effectively 
connected for the taxable year with the conduct of a trade or business 
in the United States by that corporation. The election may be made 
whether or not the foreign corporation is engaged in trade or business 
in the United States during the taxable year for which the election is 
made or whether or not the corporation has income from real property 
which for the taxable year is effectively connected with the conduct of 
a trade or business in the United States, but it may be made only with 
respect to income from sources within the United States which, without 
regard to section 882(d) and Sec. 1.871-10, is not effectively 
connected for the taxable year with the conduct of a trade or business 
in the United States by that corporation. The income to which the 
election applies shall be determined as provided in paragraph (b) of 
Sec. 1.871-10 and shall be subject to tax in the manner, and subject to 
the same conditions, provided by section 882(a)(1) and paragraph (b)(2) 
of Sec. 1.882-1. Section 871(d) (2) and (3) and the provisions of Sec. 
1.871-10 thereunder shall apply in respect of an election under section 
882(d) in the same manner and to the same extent as they apply in 
respect of elections under section 871(d).
    (b) Interest on U.S. obligations received by banks organized in 
possessions. Interest received from sources within the United States 
during the taxable year on obligations of the United States by a foreign 
corporation created or organized in, or under the law of, a possession 
of the United States and carrying on the banking business in a 
possession of the United States during the taxable year shall be 
treated, pursuant to section 882(e) and this paragraph, as income which 
is effectively connected for the taxable year with the conduct of a 
trade or business in the United States by that corporation. This 
paragraph applies whether or not the foreign corporation is engaged in 
trade or business in the United States at any time during the taxable 
year but only with respect to income which, without regard to this 
paragraph, is not effectively connected for the taxable year with the 
conduct of a trade or business in the United States by that corporation. 
Any interest to which this paragraph applies shall be subject to tax in 
the manner, and subject to the same conditions, provided by section 
882(a)(1) and paragraph (b)(2) of Sec. 1.882-1. To the extent that 
deductions are connected with interest to which this paragraph applies, 
they shall be treated for purposes of section 882(c)(1) and the 
regulations thereunder as connected with income which is effectively 
connected for the taxable year with the conduct of a trade or business 
in the United States by the foreign corporation. An election by the 
taxpayer is not required in respect of the income to which this 
paragraph applies. For purposes of this paragraph the term ``possession 
of the United States'' includes Guam, the Midway Islands, the Panama 
Canal Zone, the Commonwealth of Puerto Rico, American Samoa, the Virgin 
Islands, and Wake Island.

[[Page 399]]

    (c) Treatment of income. Any income in respect of which an election 
described in paragraph (a) of this section is in effect, and any 
interest to which paragraph (b) of this section applies, shall be 
treated, for purposes of paragraph (b)(2) of Sec. 1.882-1 and paragraph 
(a) of Sec. 1.1441-4, as income which is effectively connected for the 
taxable year with the conduct of a trade or business in the United 
States by the foreign corporation. A foreign corporation shall not be 
treated as being engaged in trade or business in the United States 
merely by reason of having such income for the taxable year.
    (d) Effective date. This section applies for taxable years beginning 
after December 31, 1966. There are no corresponding rules in this part 
for taxable years beginning before January 1, 1967.

[T.D. 7293, 38 FR 32798, Nov. 28, 1973]