IRS grants more time to elect treaty sourcing for gain on foreign stock

Plain-English summary

A U.S. consolidated group sold stock in a foreign corporation and paid tax to
the foreign country on the gain. The group reported the gain as U.S.-source
income after its original return preparer did not advise it about an election
under Section 865(h)(2)(A). Later advisers identified the election, which can
allow the group to use a treaty sourcing rule and treat qualifying gain as
foreign-source income. The IRS found that the group satisfied the standards for
late-election relief under Treasury Regulation Section 301.9100-3 and granted
60 days to file the election. Once filed, the election permits foreign-source
treatment for the stock-sale gain only if the treaty's requirements are also
satisfied.

Ruling snapshot

• Question: May the consolidated group make a late Section 865(h)(2)(A) election to apply a treaty sourcing rule to gain from selling foreign corporation stock?
• Outcome: Approved. The group received 60 days to file the election, subject to the treaty's conditions.
• Key authorities: IRC § 865(h); Treas. Reg. §§ 301.9100-1, 301.9100-3, and 301.9100-8; U.S.-Country X Treaty art. 25(3)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202611004
Release Date: 3/13/2026
Index Number: 865.01-05

Third Party Communication: None
Date of Communication: Not Applicable

Person To Contact:

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--------------------------, ID No. ---------------
Telephone Number:

Refer Reply To:
CC:INTL:B03
PLR-112766-24
Date:
December 12, 2025

Legend

Corporation A = ----------------------------------------------------------
Group = --------------------
Corporation B = ----------------------
Corporation C = ------------------
Corporation D = ------------------------------
Country X = ------
U.S.-Country X Treaty = -----------------------
Date 1 = ----------------
Date 2 = -----------------------
Date 3 = ------------------
Date 4 = ---------------------------
Date 5 = -----------------------
Date 6 = --------------------------
Date 7 = -----------------------
Date 8 = ----------------------
Tax Year 1 = -------------------------------------------------
Tax Year 2 = -------------------------------------------------
Firm O = ----------------------
Firm P = --------------------------
Firm Q = ----------------------------------------------------

Dear ----------------:

This is in response to your letter dated Date 1, and supplemental correspondence dated
Date 2 and Date 3, submitted by Corporation A as the agent of Group through its
authorized representatives, requesting an extension of time under Treas. Reg. §
301.9100-3 to file an election under section 865(h)(2)(A) to apply the sourcing rule in
paragraph 3 of Article 25 (Relief from Double Taxation) under the U.S.-Country X Treaty
to treat gain from the sale of stock in Corporation D, a Country X corporation, as foreign
source income.

The ruling contained in this letter is based upon information and representations
submitted by Corporation A and accompanied by a penalty of perjury statement
executed by an appropriate party. As this office has not verified any of the material
submitted in support of the request for a ruling, it remains subject to verification on
examination. The information submitted in the request is substantially as set forth
below. Unless otherwise provided, all section references are to the Internal Revenue
Code of 1986, as amended.

I. FACTS AND REPRESENTATION

During Tax Year 1, Corporation A, a domestic corporation, wholly owned Corporation B,
a domestic corporation, which wholly owned Corporation C, a domestic corporation.
Corporation A, Corporation B, and Corporation C are members of the U.S. federal
consolidated group, Group, of which Corporation A is the common parent.

On Date 4 (during Tax Year 1), Corporation C sold shares of Corporation D, a Country
X corporation. Corporation C realized gain from the sale in Tax Year 1. Corporation C
was subject to tax in Country X with respect to the sale made on Date 4.

Corporation A engaged Firm O to prepare Group’s Tax Year 1 income tax return. Firm
O did not advise Group whether an election under section 865(h)(2)(A) could have been
made to apply the sourcing rule in Article 25(3) of the U.S.-Country X Treaty (the Treaty
sourcing rule) to treat the gain from the Date 4 sale as foreign source income. On Date
5, Corporation A filed Group’s Tax Year 1 income tax return, reporting the gain from the
Date 4 sale as U.S. source income.

On Date 6 of Tax Year 2, Corporation C sold additional shares of Corporation D.
Corporation A engaged Firm P and Firm Q to provide Group advice with respect to the
Date 6 sale. Firm P and Firm Q advised Group that an election under section
865(h)(2)(A) could be made to apply the Treaty sourcing rule to treat gain from the Date
6 sale as foreign source income. Firm P and Firm Q further advised Group that a
section 865(h)(2)(A) election could have been made to source the gain from the Date 4
sale as foreign source income.

On Date 7, Corporation A engaged Firm P to file this request for relief under Treas.
Reg. § 301.9100-3 for an extension of time to file an election under section 865(h)(2)(A)
to apply the Treaty sourcing rule to treat the gain from the Date 4 sale as foreign source
income. On Date 8, Corporation A filed a consent to extend the period of limitation on
assessment under section 6501(c)(4) for Tax Year 1.

Corporation A represents that no facts have changed since the sale on Date 4 that
make the election under section 865(h)(2)(A) more advantageous in hindsight.

II. LAW

Section 865(a) provides that, except as otherwise provided in section 865, income from
the sale of personal property by a United States resident shall be sourced in the United
States.

Section 865(h) provides that, in the case of gain to which the subsection applies, such
gain shall be sourced outside the United States, but section 904(a), (b), and (c), and
sections 907 and 960 shall be applied separately with respect to such gain.

Section 865(h)(2) states, in relevant part, that section 865(h) applies to any gain:
(i) which is from the sale of stock in a foreign corporation and which would otherwise be
sourced in the United States under section 865; (ii) which, under a treaty obligation of
the United States (applied without regard to section 865), would be sourced outside the
United States; and (iii) with respect to which the taxpayer chooses the benefits of
section 865(h).

Article 13 (Gains) of the U.S.-Country X Treaty states that, in general, each Contracting
State may tax capital gains in accordance with the provisions of its domestic law.

Paragraph 3 of Article 25 (Relief from Double Taxation) of the U.S.-Country X Treaty
provides that:

  For the purposes of allowing relief from double taxation pursuant to this
  Article, income shall be deemed to arise as follows:

          (a) income derived by a resident of a Contracting State which may
  be taxed in the other Contracting State in accordance with this Convention
  (other than solely by reason of citizenship in accordance with paragraph 3
  of Article 1 (General Scope)) shall be deemed to arise in that other State;

        (b) income derived by a resident of a Contracting State which may
  not be taxed in the other Contracting State in accordance with the
  Convention shall be deemed to arise in the first-mentioned State.

  Notwithstanding the proceeding sentence, the determination of the source
  of income for purposes of this Article shall be subject to such source rules
  in the domestic laws of the Contracting States as apply for the purpose of
  limiting the foreign tax credit. The preceding sentence shall not apply with
  respect to income dealt with in Article 12 (Royalties and Fees for Included
  Services). The rules of this paragraph shall not apply in determining credits
  against United States tax for foreign taxes other than the taxes referred to
  in paragraphs 1(b) and 2 of Article 2 (Taxes Covered).

Treas. Reg. § 301.9100-8(a) provides the rules applicable to elections provided by the
Technical and Miscellaneous Revenue Act of 1988, including section 865(h)(2).

Treas. Reg. § 301.9100-8(a)(2) provides that an election under Treas. Reg. § 301.9100-
8(a) must be made by the later of (i) the due date (taking into account any extensions of
time to file obtained by the taxpayer) of the tax return for the first taxable year for which
the election is effective, or (ii) January 22, 1990.

Treas. Reg. § 301.9100-1(c) provides, in relevant part, that the Commissioner may
grant a reasonable extension of time under the rules in Treas. Reg. §§ 301.9100-2 and
301.9100-3 to make a regulatory election under all subtitles of the Internal Revenue
Code except subtitles E, G, H, and I.

Treas. Reg. § 301.9100-1(b) defines the term “regulatory election” as an election whose
due date is prescribed by a regulation, revenue ruling, revenue procedure, notice, or
announcement.

Treas. Reg. § 301.9100-2 provides automatic extensions of time for making certain
elections.

Treas. Reg. § 301.9100-3(a) provides rules for requesting extensions of time for
regulatory elections that do not meet the requirements of Treas. Reg. § 301.9100-2. It
provides that requests for relief subject to the section will be granted when the taxpayer
provides the evidence (including affidavits) to establish to the satisfaction of the
Commissioner that the taxpayer acted reasonably and in good faith, and the grant of
relief will not prejudice the interests of the Government.

Treas. Reg. § 301.9100-3(b)(1)(v) provides that a taxpayer is generally deemed to have
acted reasonably and in good faith if the taxpayer reasonably relied on a qualified tax
professional and the taxpayer professional failed to make, or advise the taxpayer to
make, the election.

Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced
if the granting of relief would result in the taxpayer (and other affected taxpayers, if
applicable) having lower tax liability in the aggregate for all taxable years affected by the
election than the taxpayer(s) would have had if the election had been timely made.

III. CONCLUSION

Based solely on the information submitted and the representations made:

   A. Corporation A and Group satisfy Treas. Reg. § 301.9100-3(a).

   B. Corporation A and Group are granted an extension of time of 60 days from the
      date of this ruling letter to file the election described in Treas. Reg. § 301.9100-
      8(a)(1) with respect to section 865(h)(2)(A) for Tax Year 1.

   C. Upon filing the section 865(h)(2)(A) election, under section 865(h), Corporation A
      and Group may apply the sourcing rule in Article 25(3) of the U.S.-Country X
      Treaty to treat the gain from the Date 4 sale of Corporation D stock as foreign
      source income, provided that the U.S.-Country X Treaty conditions for obtaining
      treaty benefits are satisfied.

The above rulings are only applicable with respect to the Code sections addressed
herein. We do not express or imply an opinion on the federal tax consequences of any
aspect of any transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

                                      Sincerely,

                                      Associate Chief Counsel
                                      (International)


                                       By: Tracy M. Villecco
                                       Tracy M. Villecco
                                       Senior Technical Reviewer, Branch 3
                                       Office of Associate Chief Counsel (International)

Enclosure
Copy for § 6110 purposes.
cc:
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