-22-
104(b)(1), 80 Stat. 1556. As to the first action, the House
committee report stated:
Deductions and credits allowed only if return filed.
Paragraph (2) of section 882(c) continues the
substance of the rule contained in section 882(c)(1) of
existing law that a foreign corporation is to receive
the benefit of the allowable deductions only by filing
a true and accurate return of its total income
(including income subject to tax under section 881(a));
a technical amendment has been provided, however, to
make clear that the return must also include the income
derived from sources without the United States which is
effectively connected with the conduct of a trade or
business within the United States. This rule has also
been extended to apply to credits against tax, such as
the foreign tax credit, other than the credit provided
by section 32 for tax withheld at the source or the
credit provided by section 39 for certain users of
gasoline and lubricating oil. As so amended, section
882(c)(2) is consistent with section 874(a) of the
code, as amended by section 3(d) of the bill. [H.
Rept. 1450, 89th Cong. 2d Sess. 90 (1966).]
As to the addition of section 882(d), the Senate committee report
stated:
As a general rule, the bill provides that income of a
nonresident alien or foreign corporation will be
subject to the flat 30-percent (or lower treaty) rate
if it is not effectively connected with the conduct of
a trade or business within the United States. The
regular individual or corporate rates apply to income
which is effectively connected to the conduct of a U.S.
trade or business. However, the foreigner may elect to
treat real property income as if it were income
effectively connected with a U.S. business. This is to
permit the deductions attributable to this real
property income to be deducted from it. * * * [S.
Rept. 1707, 89th Cong., 2d Sess. 19 (1966), 1966-2 C.B.
1059, 1071.]
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