26 U.S.C. § 934

Limitation on reduction in income tax liability incurred to the Virgin Islands

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(a) General rule

Tax liability incurred to the Virgin Islands pursuant to this subtitle, as made applicable in the Virgin Islands by the Act entitled “An Act making appropriations for the naval service for the fiscal year ending June 30, 1922, and for other purposes”, approved July 12, 1921 (48 U.S.C. 1397), or pursuant to section 28(a) of the Revised Organic Act of the Virgin Islands, approved July 22, 1954 (48 U.S.C. 1642), shall not be reduced or remitted in any way, directly or indirectly, whether by grant, subsidy, or other similar payment, by any law enacted in the Virgin Islands, except to the extent provided in subsection (b).

(b) Reductions permitted with respect to certain income(1) In general

Except as provided in paragraph (2), subsection (a) shall not apply with respect to so much of the tax liability referred to in subsection (a) as is attributable to income derived from sources within the Virgin Islands or income effectively connected with the conduct of a trade or business within the Virgin Islands.

(2) Exception for liability paid by citizens or residents of the United States

Paragraph (1) shall not apply to any liability payable to the Virgin Islands under section 932(b).

(3) Special rule for non-United States income of certain foreign corporations(A) In general

In the case of a qualified foreign corporation, subsection (a) shall not apply with respect to so much of the tax liability referred to in subsection (a) as is attributable to income which is derived from sources outside the United States and which is not effectively connected with the conduct of a trade or business within the United States.

(B) Qualified foreign corporationFor purposes of subparagraph (A), the term “qualified foreign corporation” means any foreign corporation if less than 10 percent of—(i) the total voting power of the stock of such corporation, and(ii) the total value of the stock of such corporation, is owned or treated as owned (within the meaning of section 958) by 1 or more United States persons.(4) Determination of income source, etc.

The determination as to whether income is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States shall be made under regulations prescribed by the Secretary.

(Added Pub. L. 86–779, § 4(a)(1), Sept. 14, 1960, 74 Stat. 998; amended Pub. L. 94–455, title XIX, §§ 1901(a)(118), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1784, 1834; Pub. L. 97–248, title II, § 213(b), Sept. 3, 1982, 96 Stat. 463; Pub. L. 97–455, § 1(c), Jan. 12, 1983, 96 Stat. 2498; Pub. L. 98–369, div. A, title VIII, § 801(d)(7), July 18, 1984, 98 Stat. 996; Pub. L. 99–514, title XII, § 1275(a)(2)(A), (c)(1), (2), title XVIII, § 1876(f)(2), Oct. 22, 1986, 100 Stat. 2598, 2900; Pub. L. 108–357, title VIII, § 908(c)(3), Oct. 22, 2004, 118 Stat. 1656.)Editorial NotesAmendments

2004—Subsec. (b)(4). Pub. L. 108–357 struck out “the Virgin Islands or” before “the United States” in two places.

1986—Subsec. (a). Pub. L. 99–514, § 1275(c)(2)(A), struck out “or (c) or in section 934A” after “subsection (b)”.

Subsec. (b). Pub. L. 99–514, § 1275(c)(1), (2)(B), added subsec. (b) and struck out former subsec. (b) which excepted from subsec. (a) domestic or Virgin Islands corporations to the extent they derived income from sources without the United States under certain conditions.

Subsec. (c). Pub. L. 99–514, § 1275(c)(1), struck out subsec. (c) which provided an exception to subsec. (a) of this section for individual citizens of the United States residing in the Virgin Islands to the extent their income is derived from sources within the Virgin Islands.

Subsec. (d). Pub. L. 99–514, § 1275(c)(1), struck out subsec. (d) which related to requirement to supply information.

Subsec. (e). Pub. L. 99–514, § 1275(a)(2)(A), struck out subsec. (e) which provided for tax treatment of intangible property income of certain domestic corporations.

Subsec. (f). Pub. L. 99–514, § 1275(a)(2)(A), struck out subsec. (f) which provided a transitional rule for applying subsec. (b)(2) of this section with respect to taxable years beginning after Dec. 31, 1982, and before Jan. 1, 1985.

Pub. L. 99–514, § 1876(f)(2), struck out subsec. (f) which provided that subsec. (a) of this section not apply in the case of a Virgin Islands corporation which is a FSC.

1984—Subsec. (f). Pub. L. 98–369 added subsec. (f) relating to FSC.

1983—Subsec. (a). Pub. L. 97–455 inserted “or in section 934A” after “subsection (b) or (c)”.

1982—Subsec. (b)(2). Pub. L. 97–248, § 213(b)(1), substituted “65 percent” for “50 percent”.

Subsec. (e). Pub. L. 97–248, § 213(b)(2), added subsec. (e).

Subsec. (f). Pub. L. 97–248, § 213(b)(2), added a temporary subsec. (f) which provided that in applying subsec. (b)(2) with respect to taxable years beginning after December 31, 1982, and before January 1, 1985, “55 percent” shall be substituted for “65 percent” for taxable years beginning in calendar year 1983 and “60 percent” shall be substituted for “65 percent” for taxable years beginning in calendar year 1984.

1976—Subsec. (b). Pub. L. 94–455, § 1901(a)(118), struck out “For the purposes of this subsection, all amounts received by such corporation within the United States, whether derived from sources within or without the United States, shall be considered as being derived from sources within the United States”.

Subsec. (d). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary” in two places.

Statutory Notes and Related SubsidiariesEffective Date of 2004 Amendment

Amendment by Pub. L. 108–357 applicable to taxable years ending after Oct. 22, 2004, see section 908(d)(1) of Pub. L. 108–357, set out as an Effective Date note under section 937 of this title.

Effective Date of 1986 Amendment

Amendment by section 1275(a)(2)(A), (c)(1), (2) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 1277 of Pub. L. 99–514, set out as a note under section 931 of this title.

Amendment by section 1876(f)(2) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

Effective Date of 1984 Amendment

Amendment by Pub. L. 98–369 applicable to transactions after Dec. 31, 1984, in taxable years ending after such date, see section 805(a)(1) of Pub. L. 98–369, as amended, set out as a note under section 245 of this title.

Effective Date of 1983 Amendment

Pub. L. 97–455, § 1(e), Jan. 12, 1983, 96 Stat. 2498, provided that:“(1)In general.—Except as provided in paragraph (2), the amendments made by this section [enacting section 934A and amending this section] shall apply to amounts received after the date of the enactment of this Act [Jan. 12, 1983] in taxable years ending after such date.“(2)Withholding.—The amendment made by subsection (b) [enacting section 1444 of this title] shall apply to payments made after the date of the enactment of this Act.”

Effective Date of 1982 Amendment

Amendment by Pub. L. 97–248 applicable to taxable years beginning after Dec. 31, 1982, except that so much of this section to which former section 936(h)(6) applied by reason of subsec. (e)(4) of this section was applicable to taxable years ending after July 1, 1982, see section 213(e)(1), (2) of Pub. L. 97–248 set out as a note under section 246 of this title.

Effective Date of 1976 Amendment

Amendment by section 1901(a)(118) of Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.

Effective Date

Pub. L. 86–779, § 4(e)(1), Sept. 14, 1960, 74 Stat. 1000, provided that: “The amendments made by subsection (a) [enacting this section] shall apply to tax liability incurred with respect to taxable years beginning on or after January 1, 1960.”

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

Notes of Decisions

Cited in 61 cases (1 in the last 5 years), 1929–2021 · leading case: Vento v. Director of Virgin Islands Bureau of Internal Revenue

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Vento v. Director of Virgin Islands Bureau of Internal Revenue (2013) ca3 · cites it 7× “Although Virgin Islands residents who satisfy the requirements of § 932(c) pay their taxes to the VIBIR rather than the IRS, the Virgin Islands’s ability to engage in tax competition with the United States is limited by 26 U.S.C. § 934 , which provides that “[t]ax liability…”

Arthur Appleton, Jr. v. Commissioner of IRS (2011) ca3 · cites it 6× “Congress also enacted a specific provision directing that if a taxpayer’s income is “derived from sources within the Virgin Islands or income effectively connected with the conduct of a trade or business within the Virgin Islands,” the taxpayer is entitled to certain tax credits…”

Cortland Specialty Co. v. Commissioner of Internal Rev. (1932) ca2 · cites it 6× “, hereinafter described was a reorganization within the meaning of section 203 (h) (1) of the Revenue Act of 1926, 26 USCA § 934 (h) (1), which relieved the Cortland Company from paying an income tax upon any gain that might result therefrom, or whether the transfer was a mere…”

Williams v. Commissioner of Internal Revenue (1930) ca8 · cites it 8× “Whether such gain or loss shall be recognized after it has been computed, and to what exent, depends upon section 203 (26 USCA § 934), the opening sentence of which reads: "(a) Upon the sale or exchange of property the entire amount of the gain or loss, determined under section…”

Minnesota Tea Co. v. Commissioner of Internal Revenue (1935) ca8 · cites it 10× “…of 1921, § 202 (c) (2), 42 Stat. 229 , 230. It was re-enacted by Congress in the Revenue Act of 1924, § 203 (h) (1), 26 USCA § 934 (h) (1); in the Revenue Act of 1926, § 203 (h) (1), 26 USCA § 934 (h) (1); and in the Revenue Act of 1928, § 112 (i) (1), 26 USCA § 2112 (i) (1).…”

Halliburton v. Commissioner (1935) ca9 · cites it 5× “256 , 26 USCA § 934 (b) (4), which reads: “No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation, and immediately after the exchange such person or persons are in…”

McHenry v. Commissioner (2012) ca4 · cites it 2× “The Third Circuit in Appleton II, on which the Virgin Islands relies heavily, stated conclusorily that Rule 24(b)(2)'s requirement that the Virgin Islands administer the statute at issue "appears to be satisfied, as Appleton's tax assessments are based on an income calculation…”

Arden S. Heverly and Sophia S. Heverly v. Commissioner of Internal Revenue (1980) ca3 · cites it 4× “26 U.S.C.A. § 934 (b)(3), where a corporation exchanges its property “solely for stock or securities.”

Helvering v. Gregory (1934) ca2 · cites it 2× “To dodge the shareholders’ taxes is not one of the transactions contemplated as corporate “reorganizations.”

Commissioner of Internal Revenue v. Ashland Oil & Refining Co. (1938) ca6 · cites it 2× “203 (h) (1) of the Revenue Act of 1926, 26 U.S. C.A. § 934 (h) (1), now 26 U.S.C.”

C. H. Mead Coal Co. v. Commissioner of Internal Revenue (1934) ca4 · cites it 3× “The statutes applicable to this phase of the ease are section 203 (b) (2) and section 203 (h, i) of the Revenue Act of 1926, 26 USCA § 934 (b) (2) and (h, i). These sections are as follows: “Sec.”

Coffey v. Commissioner (2011) ca8 · cites it 2× “” 26 U.S.C. § 934 ; 29 V.I.C. § 713b(b). Coffey worked in the USVI from 2003 to 2006.”

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— 26 U.S.C. § 934(b) — 3 cases

Williams v. Commissioner of Internal Revenue (1930) ca8 “Whether such gain or loss shall be recognized after it has been computed, and to what exent, depends upon section 203 (26 USCA § 934), the opening sentence of which reads: "(a) Upon the sale or exchange of property the entire amount of the gain or loss, determined under section…”

Unaka & City Nat. Bank v. United States (1931) ca6

Hillyer, Edwards, Fuller, Inc. v. United States (1931) laed

— 26 U.S.C. § 934(d) — 1 case

— 26 U.S.C. § 934(d)(1) — 1 case

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