26 U.S.C. § 894 — Income affected by treaty

(a) Treaty provisions. (1) This title must be applied to a taxpayer^* while taking into account any United States treaty obligation that applies to that taxpayer. (2) Section 7852(d) addresses the relationship between treaties and this title. (b) When applying a treaty exemption or tax reduction to income not effectively connected with a United States trade or business^*, a nonresident alien individual or foreign corporation^* is treated as having no permanent establishment in the United States during the tax year. This rule does not apply to tax calculated under section 877(b). (c) (1) A foreign person cannot use a United States income-tax treaty with a foreign country to obtain a reduced withholding-tax rate on income received through an entity treated as a partnership^* or otherwise as “fiscally transparent” under this title if the income is not treated as that person's income under the foreign country's tax laws, the treaty has no rule for income through a partnership, and the foreign country does not tax a distribution of that income from the entity to the person. This section does not otherwise define the quoted term. (2) The Secretary^* must issue needed or appropriate regulations determining how much treaty benefit is unavailable for a taxpayer not covered by paragraph (1), regarding payments or income tied to activities of an entity organized anywhere, including the United States, that is fiscally transparent under this title—including a common investment trust under section 584, grantor trust, or disregarded entity—but fiscally nontransparent under the residence jurisdiction's tax laws.