§ 1.882-0. Table of contents.

§ 1.882-1 Taxation of foreign corporations engaged in U.S. business or of foreign corporations treated as having effectively connected income.

(a) Segregation of income.

(b) Imposition of tax.

(1) Income not effectively connected with the conduct of a trade or business in the United States.

(2) Income effectively connected with the conduct of a trade or business in the United States.

(i) In general.

(ii) Determination of taxable income.

(iii) Cross references.

(c) Change in trade or business status.

(d) Credits against tax.

(e) Payment of estimated tax.

(f) Effective date.

§ 1.882-2 Income of foreign corporation treated as effectively connected with U.S. business.

(a) Election as to real property income.

(b) Interest on U.S. obligations received by banks organized in possessions.

(c) Treatment of income.

(d) Effective date.

§ 1.882-3 Gross income of a foreign corporation.

(a) In general.

(1) Inclusions.

(2) Exchange transactions.

(3) Exclusions.

(b) Foreign corporations not engaged in U.S. business.

(c) Foreign corporations engaged in U.S. business.

(d) Effective date.

§ 1.882-4 Allowance of deductions and credits to foreign corporations.

(a) Foreign corporations.

(1) In general.

(2) Return necessary.

(3) Filing deadline for return.

(4) Return by Internal Revenue Service.

(b) Allowed deductions and credits.

(1) In general.

(2) Verification.

§ 1.882-5 Determination of interest deduction.

(a)(1) Overview.

(i) In general.

(ii) Direct allocations.

(A) In general.

(B) Partnership interests.

(2) Coordination with tax treaties.

(3) Limitation on interest expense.

(4) Translation convention for foreign currency.

(5) Coordination with other sections.

(6) Special rule for foreign governments.

(7) Elections under § 1.882-5.

(i) In general.

(ii) Failure to make the proper election.

(iii) Step 2 special election for banks.

(8) Examples.

(b) Step 1: Determination of total value of U.S. assets for the taxable year.

(1) Classification of an asset as a U.S. asset.

(i) General rule.

(ii) Items excluded from the definition of U.S. asset.

(iii) Items included in the definition of U.S. asset.

(iv) Interbranch transactions.

(v) Assets acquired to increase U.S. assets artificially.

(2) Determination of the value of a U.S. asset.

(i) General rule.

(ii) Fair-market value election.

(A) In general.

(B) Adjustment to partnership basis.

(iii) Reduction of total value of U.S. assets by amount of bad debt reserves under section 585.

(A) In general.

(B) Example.

(3) Computation of total value of U.S. assets.

(i) General rule.

(ii) Adjustment to basis of financial instruments.

(c) Step 2: Determination of total amount of U.S.-connected liabilities for the taxable year.

(1) General rule.

(2) Computation of the actual ratio.

(i) In general.

(ii) Classification of items.

(iii) Determination of amount of worldwide liabilities.

(iv) Determination of value of worldwide assets.

(v) Hedging transactions.

(vi) Treatment of partnership interests and liabilities.

(vii) Computation of actual ratio of insurance companies.

(viii) Interbranch transactions.

(ix) Amounts must be expressed in a single currency.

(3) Adjustments.

(4) Elective fixed ratio method of determining U.S. liabilities.

(5) Examples.

(d) Step 3: Determination of amount of interest expense allocable to ECI under the adjusted U.S. booked liabilities method.

(1) General rule.

(2) U.S. booked liabilities.

(i) In general.

(ii) Properly reflected on the books of the U.S. trade or business of a foreign corporation that is not a bank.

(A) In general.

(B) Identified liabilities not properly reflected.

(iii) Properly reflected on the books of the U.S. trade or business of a foreign corporation that is a bank.

(A) In general.

(B) Inadvertent error.

(iv) Liabilities of insurance companies.

(v) Liabilities used to increase artificially interest expense on U.S. booked liabilities.

(vi) Hedging transactions.

(vii) Amount of U.S. booked liabilities of a partner.

(viii) Interbranch transactions.

(3) Average total amount of U.S. booked liabilities.

(4) Interest expense where U.S. booked liabilities equal or exceed U.S. liabilities.

(i) In general.

(ii) Scaling ratio.

(iii) Special rules for insurance companies.

(5) U.S.-connected interest rate where U.S. booked liabilities are less than U.S.-connected liabilities.

(i) In general.

(ii) Interest rate on excess U.S.-connected liabilities.

(A) General rule.

(B) Annual published rate election.

(6) Examples.

(e) Separate currency pools method.

(1) General rule.

(i) Determine the value of U.S. assets in each currency pool.

(ii) Determine the U.S.-connected liabilities in each currency pool.

(iii) Determine the interest expense attributable to each currency pool.

(2) Prescribed interest rate.

(3) Hedging transactions.

(4) Election not available if excessive hyperinflationary assets.

(5) Examples.

(f) Effective date.

(1) General rule.

(2) Special rules for financial products.