26 CFR § 1.864-3 - Rules for determining income effectively connected with U.S. business of nonresident aliens or foreign corporations.

---
identifier: "/us/cfr/t26/s1.864-3"
source: "ecfr"
legal_status: "authoritative_unofficial"
title: "26 CFR § 1.864-3 - Rules for determining income effectively connected with U.S. business of nonresident aliens or foreign corporations."
title_number: 26
title_name: "Internal Revenue"
section_number: "1.864-3"
section_name: "Rules for determining income effectively connected with U.S. business of nonresident aliens or foreign corporations."
chapter_name: "INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY"
subchapter_number: "A"
subchapter_name: "INCOME TAX"
part_number: "1"
part_name: "INCOME TAXES"
positive_law: false
currency: "2026-04-05"
last_updated: "2026-04-05"
format_version: "1.1.0"
generator: "[email protected]"
authority: "26 U.S.C. 7805, unless otherwise noted."
regulatory_source: "T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960; T.D. 9989, 89 FR 17606, Mar. 11, 2024, unless otherwise noted."
cfr_part: "1"
---


# 1.864-3 Rules for determining income effectively connected with U.S. business of nonresident aliens or foreign corporations.

(a) *In general.* For purposes of the Internal Revenue Code, in the case of a nonresident alien individual or a foreign corporation that is engaged in a trade or business in the United States at any time during the taxable year, the rules set forth in §§ 1.864-4 through 1.864-7 and this section shall apply in determining whether income, gain, or loss shall be treated as effectively connected for a taxable year beginning after December 31, 1966, with the conduct of a trade or business in the United States. Except as provided in sections 871 (c) and (d) and 882 (d) and (e), and the regulations thereunder, in the case of a nonresident alien individual or a foreign corporation that is at no time during the taxable year engaged in a trade or business in the United States, no income, gain, or loss shall be treated as effectively connected for the taxable year with the conduct of a trade or business in the United States. The general rule prescribed by the preceding sentence shall apply even though the income, gain, or loss would have been treated as effectively connected with the conduct of a trade or business in the United States if such income or gain had been received or accrued, or such loss had been sustained, in an earlier taxable year when the taxpayer was engaged in a trade or business in the United States. In applying §§ 1.864-4 through 1.864-7 and this section, the determination whether an item of income, gain, or loss is effectively connected with the conduct of a trade or business in the United States shall not be controlled by any administrative, judicial, or other interpretation made under the laws of any foreign country.

(b) *Illustrations.* The application of this section may be illustrated by the following examples:

[T.D. 7216, 37 FR 23424, Nov. 3, 1972]