Code of Federal Regulations · Section
§ 1.873-1 — -1 Deductions Allowed Nonresident Alien Individuals
26 C.F.R. § 1.873-1
(a) General provisions—(1) Allocation of deductions. In computing the taxable income of a nonresident alien individual the deductions otherwise allowable shall be allowed only if, and to the extent that, they are connected with income from sources within the United States. No deduction shall be allowed in respect of any item, or portion thereof, which is not connected with income from such sources. For this purpose, the proper apportionment and allocation of the deductions with respect to sources of income within and without the United States shall be determined as provided in part I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder, except as may otherwise be provided by tax convention. Thus, from the items of gross income specifically from sources within the United States and from the items allocated thereto under the provisions of section 863(a), there shall be deducted (i) the expenses, losses, and other deductions which are connected with those items of income and are properly apportioned or allocated thereto, and (ii) a ratable part of any other expenses, losses, or deductions which are connected with those items of income but cannot definitely be allocated to some item or class of gross income. The ratable part shall be based upon the ratio of gross income from sources within the United States to the total gross income. See §§ 1.861-8 and 1.863-1. In the case of income partly from within and partly from without the United States the expenses, losses, and other deductions connected with income from sources within the United States shall also be deducted in the manner prescribed by §§ 1.863-2 through 1.863-5 in order to ascertain under section 863 the portion of the taxable income attributable to sources within the United States.
(2) Personal exemptions. The deductions for the personal exemptions allowed by section 151 or 642(b) shall not be taken into account for purposes of subparagraph (1) of this paragraph but shall be allowed to the extent provided by paragraphs (b) and (c) of this section.
(3) Adjusted gross income. The adjusted gross income of a nonresident alien individual shall be the gross income from sources within the United States, determined in accordance with § 1.871-7, minus the deductions prescribed by section 62 to the extent such deductions are allowed under this section in computing taxable income.
(4) Standard deduction. The standard deduction shall not be allowed in computing the taxable income of a nonresident alien individual. See section 142(b)(1) and the regulations thereunder.
(5) Exempt income. No deduction shall be allowed under this section for the amount of any item or part thereof allocable to a class or classes of exempt income, including income exempt by tax convention. See section 265 and the regulations thereunder.
(b) No United States business—(1) Income of not more than $15,400—(i) Deduction for losses only. A nonresident alien individual within class 1 shall not be allowed any deductions other than the deduction for losses from sales or exchanges of capital assets determined in the manner prescribed by paragraph (b)(4)(vii) of § 1.871-7. Thus, an individual within this class shall not be allowed any deductions for the personal exemptions otherwise allowed by section 151 or 642(b).
(ii) Source of losses. Notwithstanding the provisions of section 873(b)(1), losses from sales or exchanges of capital assets shall be allowed under this subparagraph only if allocable to sources within the United States. See paragraph (b)(4)(i) of § 1.871-7.
(2) Aggregate more than $15,400—(i) Deductions allowed. In computing the income subject to tax under section 1 or section 1201(b), a nonresident alien individual within class 2 shall be allowed deductions to the extent prescribed by paragraph (c)(3) of § 1.871-7, but subject to the limitations of this section. For this purpose, the deduction for the personal exemptions shall be allowed in accordance with subdivision (iii) of this subparagraph.
(ii) Deductions disallowed. In computing the minimum tax prescribed by section 871(b)(3), that individual shall not be allowed any deductions other than the deduction for losses from sales or exchanges of capital assets determined in the manner prescribed by paragraph (b)(4)(vii) of § 1.871-7. For this purpose, the deductions for the personal exemptions shall not be allowed. See paragraph (c)(4) of § 1.871-7.
(iii) Personal exemptions. When the deductions for personal exemptions are allowed under this subparagraph, only one exemption under section 151 shall be allowed in the case of an individual who is not a resident of Canada or Mexico. A resident of either of those countries shall be allowed all the exemptions granted by section 151 to the extent prescribed therein. An estate or trust, whether or not a resident of Canada or Mexico, shall determine its deduction for the personal exemption in accordance with section 642(b) and the regulations thereunder.
(iv) Source of losses. Notwithstanding the provisions of section 873(b), losses from sales or exchanges of capital assets shall be allowed under this subparagraph only if allocable to sources within the United States. See paragraph (c)(3)(i) of § 1.871-7.
(3) Election to be taxed on a net basis. Notwithstanding the other provisions of this paragraph, a nonresident alien individual within class 1 or 2 shall be allowed the deductions allowed by paragraph (c) of this section, if pursuant to a tax convention he is entitled, and does elect, to be subject to United States tax on a net basis as though he were engaged in trade or business within the United States through a permanent establishment situated therein.
(c) United States business—(1) Deductions in general. For purposes of computing the income subject to tax, a nonresident alien individual within class 3 shall be allowed deductions to the extent prescribed by paragraph (d) of § 1.871-7, but subject to the limitations of this section. For this purpose, the deductions for the personal exemptions shall be allowed in accordance with subparagraph (3) of this paragraph.
(2) Special deductions. Notwithstanding the rule of source prescribed in paragraph (a) of this section, an individual within class 3 shall be allowed the following deductions whether or not they are connected with income from sources within the United States:
(i) Losses on transactions for profit. Any loss sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with a trade or business, shall be allowed to the extent allowed by section 165(c)(2), but only if and to the extent that the profit, if the transaction had resulted in a profit, would be taxable to such individual. Losses allowed under this subdivision shall be deducted in full, as provided in §§ 1.861-8 and 1.863-1, when the profit from the transaction, if it had resulted in a profit, would, under the provisions of section 861(a) or 863(a), have been taxable in full as income from sources within the United States; but shall be deducted under the provisions of § 1.863-3 when the profit from the transaction, if it had resulted in profit, would have been taxable only in part.
(ii) Casualty losses. Any loss of property not connected with a trade or business, sustained during the taxable year and not compensated for by insurance or otherwise, if the loss arises from fire, storm, shipwreck, or other casualty, or from theft, shall be allowed to the extent allowed by section 165(c)(3), but only if the loss is of property within the United States. Losses allowed under this subdivision shall be deducted in full, as provided in §§ 1.861-8 and 1.863-1, from the items of gross income specified under sections 861(a) and 863(a) as being derived in full from sources within the United States; but, if greater than the sum of those items, the unabsorbed loss shall be deducted from the income apportioned under the provisions of § 1.863-3 to sources within the United States.
(iii) Charitable contributions. The deduction for charitable contributions and gifts, to the extent allowed by section 170, shall be allowed under this subparagraph, but only as to contributions or gifts made to domestic corporations, or to community chests, funds, or foundations, created in the United States.
(3) Personal exemptions. Only one exemption under section 151 shall be allowed in the case of an individual who is not a resident of Canada or Mexico. A resident of either of those countries shall be allowed all the exemptions granted by section 151 to the extent prescribed therein. An estate or trust, whether or not a resident of Canada or Mexico, shall determine its deduction for the personal exemption in accordance with section 642(b) and the regulations thereunder.
Authorizing Statute
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Rules and regulations26 U.S.C. § 7805
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Advanced manufacturing production credit26 U.S.C. § 45X
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Alcohol, etc., used as fuel26 U.S.C. § 40
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Gross income defined26 U.S.C. § 61
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Transfers of excess pension assets to retiree health accounts26 U.S.C. § 420
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Partial exclusion for gain from certain small business stock26 U.S.C. § 1202
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Tax treatment of stripped bonds26 U.S.C. § 1286
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Current taxation of income from qualified electing funds26 U.S.C. § 1293
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Imposition of tax on certain foreign procurement26 U.S.C. § 5000C
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Returns regarding payments of interest26 U.S.C. § 6049
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Signing of returns and other documents26 U.S.C. § 6061
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General requirement of return, statement, or list26 U.S.C. § 6011
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Income from discharge of indebtedness26 U.S.C. § 108
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Indian general welfare benefits26 U.S.C. § 139E
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Bonds must be registered to be tax exempt; other requirements26 U.S.C. § 149
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Trade or business expenses26 U.S.C. § 162
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Accelerated cost recovery system26 U.S.C. § 168
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Amortizable bond premium26 U.S.C. § 171
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Golden parachute payments26 U.S.C. § 280G
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Distributions of stock and stock rights26 U.S.C. § 305
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Transfer to corporation controlled by transferor26 U.S.C. § 351
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Special rules for long-term contracts26 U.S.C. § 460
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Determination of basis of partner’s interest26 U.S.C. § 705
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Taxes of foreign countries and of possessions of United States26 U.S.C. § 901
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Controlled foreign corporations; United States persons26 U.S.C. § 957
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New energy efficient home credit26 U.S.C. § 45L
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2-percent floor on miscellaneous itemized deductions26 U.S.C. § 67
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Certain death benefits26 U.S.C. § 101
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Qualified business income26 U.S.C. § 199A
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Installment method26 U.S.C. § 453
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Certain payments for the use of property or services26 U.S.C. § 467
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Partners, not partnership, subject to tax26 U.S.C. § 701
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Extent of recognition of gain or loss on distribution26 U.S.C. § 731
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Capitalization of certain policy acquisition expenses26 U.S.C. § 848
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Special rules for determining source26 U.S.C. § 863
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Income of foreign governments and of international organizations26 U.S.C. § 892
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Definitions and special rules26 U.S.C. § 6241
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Computation and payment of tax26 U.S.C. § 1503
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Adjusted gross income defined26 U.S.C. § 62
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Treatment of loans with below-market interest rates26 U.S.C. § 7872
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Basis to distributees26 U.S.C. § 358
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Minimum participation standards26 U.S.C. § 410
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Other definitions and special rules26 U.S.C. § 860G
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Adjustments required by changes in method of accounting26 U.S.C. § 481
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Definitions26 U.S.C. § 7701
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Insurance income26 U.S.C. § 953
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Returns relating to actions affecting basis of specified securities26 U.S.C. § 6045B
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Information relating to certain trusts and annuity plans26 U.S.C. § 6047
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Enhanced oil recovery credit26 U.S.C. § 43
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Energy efficient commercial buildings deduction26 U.S.C. § 179D
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Redemption through use of related corporations26 U.S.C. § 304
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Certain stock purchases treated as asset acquisitions26 U.S.C. § 338
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Special limitations on certain excess credits, etc.26 U.S.C. § 383
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Optional treatment of elective deferrals as Roth contributions26 U.S.C. § 402A
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General rule for taxable year of inclusion26 U.S.C. § 451
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Qualified ABLE programs26 U.S.C. § 529A
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Charitable remainder trusts26 U.S.C. § 664
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Nonrecognition of gain or loss on contribution26 U.S.C. § 721
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Investment of earnings in United States property26 U.S.C. § 956
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Definitions and special rule26 U.S.C. § 1377
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Relief from joint and several liability on joint return26 U.S.C. § 6015
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Return of S corporation26 U.S.C. § 6037
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Notice of certain transfers to foreign persons26 U.S.C. § 6038B
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Information at source26 U.S.C. § 6041
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Imposition of accuracy-related penalty on underpayments26 U.S.C. § 6662
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Tax imposed26 U.S.C. § 1
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Railroad track maintenance credit26 U.S.C. § 45G
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Zero-emission nuclear power production credit26 U.S.C. § 45U
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Rehabilitation credit26 U.S.C. § 47
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Clean electricity investment credit26 U.S.C. § 48E
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Special rules26 U.S.C. § 52
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Election to expense certain depreciable business assets26 U.S.C. § 179
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Individual retirement accounts26 U.S.C. § 408
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Special rules for nondealers26 U.S.C. § 453A
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Deductions limited to amount at risk26 U.S.C. § 465
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Exemption from tax on corporations, certain trusts, etc.26 U.S.C. § 501
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Definition of regulated investment company26 U.S.C. § 851
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Source rules for personal property sales26 U.S.C. § 865
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Tax on nonresident alien individuals26 U.S.C. § 871
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Foreign base company income26 U.S.C. § 954
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S corporation defined26 U.S.C. § 1361
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Definitions26 U.S.C. § 1402
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Distributions of property26 U.S.C. § 301
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Life insurance contract defined26 U.S.C. § 7702
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Previously-owned clean vehicles26 U.S.C. § 25E
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Electricity produced from certain renewable resources, etc.26 U.S.C. § 45
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Clean fuel production credit26 U.S.C. § 45Z
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Taxation of employee annuities26 U.S.C. § 403
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Last-in, first-out inventories26 U.S.C. § 472
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Allocation of income and deductions among taxpayers26 U.S.C. § 482
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Definitions applicable to subparts A, B, C, and D26 U.S.C. § 643
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Taxable years of partner and partnership26 U.S.C. § 706
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Disposition of investment in United States real property26 U.S.C. § 897
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Administrative adjustment request by partnership26 U.S.C. § 6227
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Citizens or residents of the United States living abroad26 U.S.C. § 911
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Residence and source rules involving possessions26 U.S.C. § 937
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Rules relating to expatriated entities and their foreign parents26 U.S.C. § 7874
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Regulations26 U.S.C. § 1502
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Capitalization and inclusion in inventory costs of certain expenses26 U.S.C. § 263A
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Foreign corporations26 U.S.C. § 367
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Roth IRAs26 U.S.C. § 408A
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Minimum vesting standards26 U.S.C. § 411
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Partner’s distributive share26 U.S.C. § 704
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Unrealized receivables and inventory items26 U.S.C. § 751
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Taxation of residual interests26 U.S.C. § 860C
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Exclusions from gross income26 U.S.C. § 883
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Income affected by treaty26 U.S.C. § 894
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Other definitions and special rules26 U.S.C. § 989
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Special rules26 U.S.C. § 1474
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Returns of brokers26 U.S.C. § 6045
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Information returns of tax return preparers26 U.S.C. § 6060
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Authority to make credits or refunds26 U.S.C. § 6402
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Failure by individual to pay estimated income tax26 U.S.C. § 6654
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Interest on certain home mortgages26 U.S.C. § 25
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Credit for qualified commercial clean vehicles26 U.S.C. § 45W
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Interest on State and local bonds26 U.S.C. § 103
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Qualified lessee construction allowances for short-term leases26 U.S.C. § 110
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Losses26 U.S.C. § 165
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Charitable, etc., contributions and gifts26 U.S.C. § 170
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Incentive stock options26 U.S.C. § 422
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Deemed paid credit for subpart F inclusions26 U.S.C. § 960
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Election of mark to market for marketable stock26 U.S.C. § 1296
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Returns relating to certain life insurance contract transactions26 U.S.C. § 6050Y
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Clean vehicle credit26 U.S.C. § 30D
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Credit for carbon oxide sequestration26 U.S.C. § 45Q
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Amount of credit26 U.S.C. § 46
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Advanced manufacturing investment credit26 U.S.C. § 48D
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Arbitrage26 U.S.C. § 148
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Amortization of goodwill and certain other intangibles26 U.S.C. § 197
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Interest on education loans26 U.S.C. § 221
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Disallowance of certain entertainment, etc., expenses26 U.S.C. § 274
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Qualifications for tax credit employee stock ownership plans26 U.S.C. § 409
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Unrelated debt-financed income26 U.S.C. § 514
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Rules for allocation of basis26 U.S.C. § 755
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Rules for certain reserves26 U.S.C. § 807
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Special rules in case of foreign oil and gas income26 U.S.C. § 907
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Basis of property acquired from a decedent26 U.S.C. § 1014
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Special rules26 U.S.C. § 1298
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Definitions26 U.S.C. § 3401
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Extension of time for filing returns26 U.S.C. § 6081
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Renumbered § 45C]26 U.S.C. § 28
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Credit for production of clean hydrogen26 U.S.C. § 45V
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Energy credit26 U.S.C. § 48
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Limitation on credit26 U.S.C. § 904
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Qualified pension, profit-sharing, and stock bonus plans26 U.S.C. § 401
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Dependent care assistance programs26 U.S.C. § 129
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Special rules for nuclear decommissioning costs26 U.S.C. § 468A
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Mark to market accounting method for dealers in securities26 U.S.C. § 475
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Basis of distributed property other than money26 U.S.C. § 732
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Straddles26 U.S.C. § 1092
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Qualified electing fund26 U.S.C. § 1295
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Averaging of farm income26 U.S.C. § 1301
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Withholdable payments to foreign financial institutions26 U.S.C. § 1471
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Definitions26 U.S.C. § 1504
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Basis information to persons acquiring property from decedent26 U.S.C. § 6035
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Information with respect to certain foreign-owned corporations26 U.S.C. § 6038A
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Returns relating to cash received in trade or business, etc.26 U.S.C. § 6050I
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Credit for increasing research activities26 U.S.C. § 41
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Definitions and special rules26 U.S.C. § 150
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Passive activity losses and credits limited26 U.S.C. § 469
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Certain expenses for which credits are allowable26 U.S.C. § 280C
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Assumption of liability26 U.S.C. § 357
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Complete liquidations of subsidiaries26 U.S.C. § 332
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Distribution of stock and securities of a controlled corporation26 U.S.C. § 355
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Period for computation of taxable income26 U.S.C. § 441
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General rule for taxable year of deduction26 U.S.C. § 461
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Special rules for modified guaranteed contracts26 U.S.C. § 817A
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Treatment of variable contracts26 U.S.C. § 817
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Certain reinsurance agreements26 U.S.C. § 845
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Failure to file notice of redetermination of foreign tax26 U.S.C. § 6689
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Branch transactions26 U.S.C. § 987
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Qualified zone property defined26 U.S.C. § 1397D
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Withholdable payments to other foreign entities26 U.S.C. § 1472
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Liquidating, etc., transactions26 U.S.C. § 6043
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Verification of returns26 U.S.C. § 6065
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Mode or time of collection26 U.S.C. § 6302
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Transfer of certain credits26 U.S.C. § 6418
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American Opportunity and Lifetime Learning credits26 U.S.C. § 25A
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Refundable credit for coverage under a qualified health plan26 U.S.C. § 36B
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Clean electricity production credit26 U.S.C. § 45Y
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Other special rules26 U.S.C. § 50
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Treatment of community income26 U.S.C. § 66
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Basis to corporations26 U.S.C. § 362
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Election of taxable year other than required taxable year26 U.S.C. § 444
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Transactions between partner and partnership26 U.S.C. § 707
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Special allocation rules for certain asset acquisitions26 U.S.C. § 1060
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Discounted unpaid losses defined26 U.S.C. § 846
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Definitions and special rules26 U.S.C. § 864
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Capital asset defined26 U.S.C. § 1221
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Interest on tax deferral26 U.S.C. § 1291
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Passive foreign investment company26 U.S.C. § 1297
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Withholding of tax on nonresident aliens26 U.S.C. § 1441
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Returns as to interests in foreign partnerships26 U.S.C. § 6046A
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State and local income tax refunds26 U.S.C. § 6050E
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Returns relating to exchanges of certain partnership interests26 U.S.C. § 6050K
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Returns relating to higher education tuition and related expenses26 U.S.C. § 6050S
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Reporting of health insurance coverage26 U.S.C. § 6055
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Low-income housing credit26 U.S.C. § 42
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New markets tax credit26 U.S.C. § 45D
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Definitions and special rules26 U.S.C. § 414
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Qualified asset account; limitation on additions to account26 U.S.C. § 419A
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General rule for methods of accounting26 U.S.C. § 446
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Interest on certain deferred payments26 U.S.C. § 483
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Reserves for losses on loans of banks26 U.S.C. § 585
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Certain revocable trusts treated as part of estate26 U.S.C. § 645
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Insurance company taxable income26 U.S.C. § 832
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Income from sources within the United States26 U.S.C. § 861
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Treatment of certain foreign currency transactions26 U.S.C. § 988
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Functional currency26 U.S.C. § 985
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Other definitions and special rules26 U.S.C. § 1275
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Election to extend time for payment of tax on undistributed earnings26 U.S.C. § 1294
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Requirement to maintain minimum essential coverage26 U.S.C. § 5000A
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Returns by exempt organizations26 U.S.C. § 6033
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Information with respect to foreign financial assets26 U.S.C. § 6038D
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Returns relating to the cancellation of indebtedness by certain entities26 U.S.C. § 6050P
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Identifying numbers26 U.S.C. § 6109
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Elective payment of applicable credits26 U.S.C. § 6417
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Certain fringe benefits26 U.S.C. § 132
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Dependent defined26 U.S.C. § 152
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Interest26 U.S.C. § 163
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Bad debts26 U.S.C. § 166
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Special rules for credits and deductions26 U.S.C. § 642
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General rule for inventories26 U.S.C. § 471
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Political organizations26 U.S.C. § 527
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Special rules applicable to sections 661 and 66226 U.S.C. § 663
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Allowance of deductions and credits26 U.S.C. § 874
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Branch profits tax26 U.S.C. § 884
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Tax imposed on certain built-in gains26 U.S.C. § 1374
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Foreign tax-exempt organizations26 U.S.C. § 1443
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Valuation tables26 U.S.C. § 7520
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Losses on small business stock26 U.S.C. § 1244
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Distributions26 U.S.C. § 1368
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Definitions26 U.S.C. § 1473
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Information with respect to certain fines, penalties, and other amounts26 U.S.C. § 6050X
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Failure by corporation to pay estimated income tax26 U.S.C. § 6655