Frequently Asked Questions
Who is eligible for the Election to Treat Real Property Income as Effectively Connected Income?
Available for foreign corporations deriving income from U.S. real property or interests therein that would not otherwise be treated as ECI.
How does the Election to Treat Real Property Income as Effectively Connected Income work?
Allows a foreign corporation to elect to treat U.S. real property income as ECI, permitting the use of deductions (like depreciation and interest) to offset the income.
What law authorizes the Election to Treat Real Property Income as Effectively Connected Income?
The Election to Treat Real Property Income as Effectively Connected Income is authorized under IRC §882(d) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §882
Source: Internal Revenue Code, Title 26, United States Code
§ 882. Tax on income of foreign corporations connected with United States business(a) Imposition of tax(1) In generalA foreign corporation engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 11, 55, or 59A,11 So in original. The comma probably should not appear. on its taxable income which is effectively connected with the conduct of a trade or business within the United States.
(2) Determination of taxable incomeIn determining taxable income for purposes of paragraph (1), gross income includes only gross income which is effectively connected with the conduct of a trade or business within the United States.
(3) [Cross reference 22 Par. (3) heading editorially supplied.]For special tax treatment of gain or loss from the disposition by a foreign corporation of a United States real property interest, see section 897.
(b) Gross incomeIn the case of a foreign corporation, except where the context clearly indicates otherwise, gross income includes only—(1) gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and
(2) gross income which is effectively connected with the conduct of a trade or business within the United States.
(c) Allowance of deductions and credits(1) Allocation of deductions(A) General ruleIn the case of a foreign corporation, the deductions shall be allowed only for purposes of subsection (a) and (except as provided by subparagraph (B)) only if and to the extent that they are connected with income which is effectively connected with the conduct of a trade or business within the United States; and the proper apportionment and allocation of the deductions for this purpose shall be determined as provided in regulations prescribed by the Secretary.
(B) Charitable contributionsThe deduction for charitable contributions and gifts provided by section 170 shall be allowed whether or not connected with income which is effectively connected with the conduct of a trade or business within the United States.
(2) Deductions and credits allowed only if return filedA foreign corporation shall receive the benefit of the deductions and credits allowed to it in this subtitle only by filing or causing to be filed with the Secretary a true and accurate return, in the manner prescribed in subtitle F, including therein all the information which the Secretary may deem necessary for the calculation of such deductions and credits. The preceding sentence shall not apply for purposes of the tax imposed by section 541 (relating to personal holding company tax), and shall not be construed to deny the credit provided by section 33 for tax withheld at source or the credit provided by section 34 for certain uses of gasoline.
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