Overseas services to the U.S. government may qualify as FDDEI

Plain-English summary

Chief Counsel considered a domestic corporation that provides consulting services to Department of Defense employees located at an overseas military base. Section 250 focuses on where a service recipient is located, not the recipient's nationality, and the term “person” can include the U.S. government in this setting. The advice treats the Defense Department's foreign operations as separate from its U.S. operations when identifying which operations benefit from the service. Because the hypothetical services benefit only the foreign military base, the service recipient is treated as located outside the United States. The related income therefore may qualify as foreign-derived deduction eligible income for the FDII calculation.

Ruling snapshot

• Question: Can services provided to the U.S. government at an overseas location qualify as services to a person not located within the United States for section 250?
• Outcome: Advice given, yes, when the relevant government operations benefiting from the services are outside the United States
• Key authorities: IRC § 250(b)(4)(B); Treas. Reg. §§ 1.250(b)-3, 1.250(b)-5

Full text (IRS public release)

      Office of Chief Counsel
      Internal Revenue Service
      memorandum
      Number: 202436009
      Release Date: 9/6/2024
      CC:INTL:B06:
      POSTS-110409-24

UILC: 9416.00-00, 9416.01-00, 9416.02-00

date: August 02, 2024

to:   Julia A. Cannarozzi
      Area Counsel (Large Business & International)

      Peyton Miller
      General Attorney, Tax (Large Business & International)

from: Branch 6, ACCI

subject: Eligibility of services provided to the U.S. government outside the United States as
foreign-derived deduction eligible income under section 250(b)(4)(B)

      This Chief Counsel Advice responds to your request for assistance. This advice may not
      be used or cited as precedent.

      ISSUE

      Whether services provided to the United States government (including any political
      subdivision, agency, or instrumentality thereof) at a location outside the United States
      may qualify as services provided to “any person . . . not located within the United
      States” for purposes of section 250(b)(4)(B) of the Internal Revenue Code (“Code”).

      The discussion below applies the relevant law to a hypothetical set of facts.

      CONCLUSION

      For the reasons stated below, based on the Code, proposed and final section 250
      regulations, and caselaw, services provided by a taxpayer to the United States
      government (including any political subdivision, agency, or instrumentality thereof)
      where the recipient (the U.S. government or its political subdivision, agency, or
      instrumentality) is not located within the United States, may qualify as services provided

POSTS-110409-24 2

to “any person . . . not located within the United States” for purposes of section
250(b)(4)(B).

STATEMENT OF FACTS

DC, a domestic corporation, is hired by the United States Department of Defense (“U.S.
DoD”) to provide general consulting services. DC provides these services to employees
of the U.S. DoD located on a military base in country X. 1 The services are provided
primarily via electronic communication (via phone, email, teleconference, etc.) with U.S.
DoD employees located on the military base in country X, and also in person on the
military base in country X. On these simplified facts, DC’s consulting services relate
solely to the operation of the military base in country X and do not benefit 2 any other
operations of the U.S. DoD. 3 All of DC’s interactions are with U.S. DoD employees
located on the military base in country X.

LAW AND ANALYSIS

    a.      In general

Section 250 of the Code provides deductions for foreign-derived intangible income
(FDII) and global intangible low-taxed income (GILTI). For taxable years beginning after
December 31, 2017 and before January 1, 2026, section 250(a) allows domestic
corporations a deduction equal to the sum of (i) 37.5 percent of their FDII and (ii) 50
percent of their GILTI plus the associated section 78 gross-up that is attributable to the

1
DC’s activities in country X do not constitute and DC’s income from those activities are not attributable
to, a qualified business unit in country X as defined in section 989(a).
2
“Benefit” is defined for this purpose in Treas. Reg. § 1.250(b)-5(c)(2) by reference to Treas. Reg. §
1.482-9(l)(3).
3
DC’s services provided to U.S. DoD do not involve advertising services as defined in Treas. Reg. §
1.250(b)-5(c)(1) or electronically supplied services as defined in Treas. Reg. § 1.250(b)-5(c)(5). The term
advertising service means a general service that consists primarily of transmitting or displaying content
(including via the internet) with a purpose to generate revenue based on the promotion of a product or
service. The term electronically supplied service means, with respect to a general service other than an
advertising service, a service that is delivered primarily over the internet or an electronic network and for
which value of the service to the end user is derived primarily from automation or electronic delivery. It
includes the provision of access to digital content (as defined in § 1.250(b)-3), such as streaming content;
on-demand network access to computing resources, such as networks, servers, storage, and software;
the provision or support of a business or personal presence on a network, such as a website or a web
page; online intermediation platform services; services automatically generated from a computer via the
internet or other network in response to data input by the recipient; and similar services. It does not
include services that primarily involve the application of human effort by the renderer (not considering the
human effort involved in the development or maintenance of the technology enabling the electronically
supplied services). Accordingly, electronically supplied services do not include certain services (such as
legal, accounting, medical, or teaching services) involving primarily human effort that are provided
electronically.

POSTS-110409-24 3

corporation’s GILTI for the year. 4 For taxable years beginning after December 31,
2025, the FDII and GILTI deductions are reduced to 21.875 percent and 37.5 percent,
respectively. 5

The FDII of any domestic corporation is the amount which bears the same ratio to the
deemed intangible income (“DII”) 6 of such corporation as the foreign-derived deduction
eligible income (“FDDEI”) of such corporation bears to the deduction eligible income
(“DEI”) 7 of such corporation. 8 The FDII deduction is defined by the following formula:
FDII = DII x (FDDEI / DEI). 9

Section 250(b)(4) defines the term FDDEI to mean, with respect to any taxpayer for any
taxable year, any DEI of such taxpayer which is derived in connection with—

      (A) property--
             (i) which is sold by the taxpayer to any person who is not a United States
      person, and
             (ii) which the taxpayer establishes to the satisfaction of the Secretary is for
      a foreign use, or
      (B) services provided by the taxpayer which the taxpayer establishes to the
      satisfaction of the Secretary are provided to any person, or with respect to
      property, not located within the United States.

      b.      Nationality of the services recipient is irrelevant for determining whether
              income from services constitutes FDDEI.

As stated in the above definition, FDDEI may be derived from either the sale of property
(a “FDDEI sale”) or provision of services (a “FDDEI service”). 10 The statute provides

4
Treas. Reg. § 1.250(a)-1(b)(1).
5
Treas. Reg. § 1.250(a)-1(b)(3).
6
The term DII means the excess (if any) of (i) the deduction eligible income of the domestic corporation,
over (ii) the deemed tangible income return of the corporation (“DTIR”), which is an amount equal to 10
percent of the corporation’s qualified business asset investment. Section 250(b)(2) and Treas. Reg. §
1.250(b)-1(c)(3).
7
The term DEI means, with respect to a domestic corporation for a taxable year, the excess (if any) of the
corporation’s gross DEI for the year over the deductions properly allocable to gross DEI for the year, as
determined under Treas. Reg. § 1.250(b)-1(d)(2). Section 250(b)(3) and Treas. Reg. § 1.250(b)-1(c)(2).
Gross DEI is gross income less excepted categories, including Subpart F income, GILTI, and dividends
received from controlled foreign corporations. Section 250(b)(3)(A)(i); Treas. Reg. § 1.250(b)-1(c)(15).
8
Section 250(b)(1) and Treas. Reg. § 1.250(a)-1(b).
9
Treas. Reg. § 1.250(b)-1(b) and Treas. Reg. § 1.250(b)-1(c)(13).
10
Section 250(b)(4) and Treas. Reg. § 1.250(b)-5(b).

POSTS-110409-24 4

different rules with respect to (1) sales transactions that qualify as giving rise to FDDEI
and (2) services transactions that qualify as giving rise to FDDEI: for sales transactions,
the statute requires both that the purchaser is not a U.S. person and that the property is
for foreign use; for services transactions, the only requirements are that (where
relevant) the service recipient is a person, and that the service recipient to whom or the
property with respect to which the services are provided is located outside the United
States. In the services context, the recipient may be “any person,” without regard to
whether such person is or is not a United States person.

The regulations reinforce the statute’s focus on the location of the recipient of the
services as determinative of whether services are FDDEI services. Under Treas. Reg.
§ 1.250(b)-5(b), a FDDEI service refers to one of five specific categories of services: a
transportation service 11 provided to a recipient, or with respect to property, located
outside the United States; 12 a property service 13 provided with respect to tangible
property located outside the United States; a proximate service 14 provided to a recipient
located outside the United States; a general service 15 provided to a consumer 16 located

11
The term transportation service means a service to transport a person or property using aircraft,
railroad rolling stock, vessel, motor vehicle, or any other mode of transportation, and includes freight
forwarding and similar services. Treas. Reg. § 1.250(b)-5(c)(9).
12
While the statute discusses services provided to a “person,” the regulations use the term “recipient,”
which they define as “a person that purchases property or services from a seller or renderer.” Treas. Reg.
§ 1.250(b)-3(b)(14). Therefore, the term “person” is embedded in the regulatory definitions of the types of
FDDEI services within the term “recipient.”
13
The term property service means a service, other than a transportation service, provided with respect to
tangible property, but only if substantially all of the service is performed at the location of the property and
results in physical manipulation of the property such as through manufacturing, assembly, maintenance,
or repair. Substantially all of a service is performed at the location of property only if the renderer spends
more than 80 percent of the time providing the service at or near the location of the property. Treas. Reg.
§ 1.250(b)-5(c)(7).
14
The term proximate service means a service, other than a property service or a transportation service,
provided to a consumer or business recipient, but only if substantially all of the service is performed in the
physical presence of the consumer or, in the case of a business recipient, substantially all of the service
is performed in the physical presence of persons working for the business recipient such as employees,
contractors, or agents. Substantially all of a service is performed in the physical presence of a consumer
or persons working for a business recipient only if the renderer spends more than 80 percent of the time
providing the service in the physical presence of such persons. Treas. Reg. § 1.250(b)-5(c)(8).
15
The term, “general service” means any service other than a property service, proximate service, or
transportation service, and includes advertising services and electronically supplied services. Treas. Reg.
§§ 1.250(b)-5(c)(6).
16
The term consumer means a recipient that is an individual that purchases a general service for
personal use. Treas. Reg. § 1.250(b)-5(c)(4); 1.250(b)-5(d).

POSTS-110409-24 5

outside the United States; and a general service provided to a business recipient 17
located outside the United States. In short, every category of FDDEI services requires
that the recipient to whom, or tangible property with respect to which, the services are
provided be located outside the United States.

The preamble to the proposed regulations highlights this distinction between the
treatment of services and sales for FDII purposes, noting that “a transaction with a U.S.
person that is located outside of the United States may qualify as a FDDEI service, but
cannot qualify as a FDDEI sale.” 18 The preamble to the proposed regulations also
highlights the importance of location, distinguishing between services provided to a
recipient versus services provided with respect to property, stating that “a general
service that is provided to a recipient located within the United States is not a FDDEI
service, even if the service is performed outside the United States, whereas a property
service that is performed outside the United States is a FDDEI service, even if the
recipient of the service is located within the United States.” 19

       c.       The location of a services recipient is based on factors other than
                nationality or place of organization.

To determine the location of the recipient for the four categories of FDDEI services to
which such a determination is relevant, the regulations show that nationality or the place
of formation or organization of the recipient is not a factor.

For general services provided to consumers, a consumer’s location is determined based
on where the consumer resides when the services are provided. 20 If the location of the
consumer cannot be obtained, generally, the consumer will be treated as residing at the
location of the consumer’s billing address. 21 A consumer of an electronically supplied
service22 is deemed to reside at the location of the device that is used to receive the
service, which may be determined based on the location of the IP address when the
electronically supplied service is provided. 23

17
The term business recipient means a recipient other than a consumer and includes all parties related to
the recipient. However, if the recipient is a related party of the taxpayer, the term does not include the
taxpayer. Treas. Reg. § 1.250(b)-5(c)(3).
18
84 Fed. Reg. 8193.
19
Id. at 8196.
20
Treas. Reg. § 1.250(b)-5(d)(1).
21
Id.
22
Treas. Reg. § 1.250(b)-5(c)(5).
23
Treas. Reg. § 1.250(b)-5(d)(2).

POSTS-110409-24 6

For general services provided to a business recipient, the regulations provide that the
recipient is located outside the United States “to the extent that the service confers a
benefit on the business recipient’s operations outside the United States.” 24 The
regulations explain that:

      the determination of which operations of the business recipient located outside
      the United States benefit from a general service, and the extent to which such
      operations benefit, is made under the principles of § 1.482-9 by treating the
      taxpayer as one controlled taxpayer, the portions of the business recipient's
      operations within the United States (if any) that may benefit from the general
      service as one or more controlled taxpayers, and the portions of the business
      recipient's operations outside the United States (if any) that may benefit from the
      general service, each as one or more controlled taxpayers. The extent to which a
      business recipient's operations within or outside of the United States are treated
      as one or more separate controlled taxpayers is determined under any
      reasonable method. 25

Thus, for example, where a business recipient has operations inside the United States
and outside the United States, those operations must be treated as separate controlled
taxpayers for purposes of determining the extent to which the service confers a benefit
outside the United States.

As a general matter, a business recipient’s operations are located where it maintains an
office or other fixed place of business. In response to comments requesting an
expansion of the definition of operations of the business recipient to include operations
performed outside of the locations where the business recipient maintains an office or
other fixed place of business, 26 the Treasury and IRS clarified in the preamble to the
final regulations that:

      The location of a business recipient’s operations that benefit from a general
      service is based on the geographical location where the business recipient’s
      activities are regular and continuous and is not based on the current location of
      mobile property such as satellites or vessels. . . . In the case of services
      performed with respect to a satellite, the location of the business recipient that
      receives services with respect to the satellite is based on where the business

24
See Treas. Reg. § 1.250(b)-5(e)(1).
25
Treas. Reg. § 1.250(b)-5(e)(2).
26
In general, an office or other fixed place of business is a fixed facility, that is, a place, site, structure, or
other similar facility, through which the business recipient engages in a trade or business. Treas. Reg. §
1.250(b)-5(e)(3).

POSTS-110409-24 7

       recipient remotely performs activities with respect to the satellite (which could be
       within the United States or in a foreign country), rather than in space.” 27

The Treasury Department and the IRS also rejected comments suggesting that where
the business recipient does not have an identifiable office or fixed place of business, the
regulations consider place of formation or incorporation for determining the location of
operations of a business recipient. 28 The regulations concluded instead that such a
recipient should be treated as located at its primary billing address. 29 And the final
regulations explicitly provide that the location of residence, incorporation, or formation of
a business recipient is not relevant to determining the location of the business
recipient’s operations that benefit from a general service. 30

General services provided to a business recipient include advertising services and
electronically supplied services. 31 For advertising services, the operations of the
business recipient that benefit from advertising services provided by the renderer are
deemed to be located where the advertisements are viewed by individuals. 32 With
respect to electronically supplied services, the operations of the business recipient that
benefit from the services provided by the renderer are deemed to be located where the
business recipient (including employees, contractors, or agents) accesses the service or
otherwise uses the service. 33

A proximate services recipient is located outside the United States if the proximate
services are performed outside the United States; 34 and property services are generally
provided with respect to tangible property located outside the United States only if the
property is located outside the United States for the duration of the period the services

27
Emphasis added. 85 Fed. Reg. 43062.
28
Id.
29
Id.
30
Treas. Reg. § 1.250(b)-5(e)(1).
31
Treas. Reg. § 1.250(b)-5(c)(6).
32
Advertising services displayed via the internet are viewed at the location of the device on which the
advertisements are viewed. The IP address may be used to establish the location of a device on which an
advertisement is viewed. Treas. Reg. § 1.250(b)-5(e)(2)(ii).
33
Additional rules are provided for situations where the location of electronically supplied services cannot
be determined. Treas. Reg. § 1.250(b)-5(e)(2)(iii).
34
If proximate services are performed partly within the United States and partly outside of the United
States, a proportionate amount of the service is treated as provided to a recipient located outside the
United States corresponding to the portion of time the renderer spends providing the service outside of
the United States. Treas. Reg. § 1.250(b)-5(f).

POSTS-110409-24 8

are performed. 35 Transportation services however, are provided to a recipient, or with
respect to property, located outside the United States only if both the origin and the
destination of the services are outside of the United States. 36

Thus, at the core of determining FDDEI services is the location of the recipient (or
property), and the nationality or place of organization of the recipient is irrelevant for
purposes of that determination.

    d.      The Code, Treasury Regulations, and case law support treating the U.S.
            government as included within the definition of a “person” as the term is
            used in Section 250(b)(4)(B).

In addition to the requirement that non-property services be provided to a recipient
located outside the United States, for those services to qualify as FDDEI services, they
must be provided to a “person.” The proper interpretation of that term in this context
depends on the text of the Code, analysis in caselaw, and the preamble and text of the
proposed and final section 250 regulations.

Section 7701(a)(1) provides that, for purposes of the Code, “[t]he term ‘person’ shall be
construed to mean and include an individual, a trust, estate, partnership, association,
company or corporation.” While this definition does not expressly include a government
(or any political subdivision, agency, or instrumentality thereof), section 7701(c)
provides that “[t]he terms ‘includes’ and ‘including’ when used in a definition contained
in this title shall not be deemed to exclude other things otherwise within the meaning of
the term defined.” On the other hand, section 7701(a)(1) says “mean” as well as
“include,” which may be read to support that the definition of person under section
7701(a)(1) is exhaustive.

Defining “United States person,” a term which (as discussed above) is not invoked in
the definition of FDDEI services but nonetheless might provide some indication of what
type of entity can qualify as a person, section 7701(a)(30) states the following:

    The term "United States person" means—
           (A) a citizen or resident of the United States,
           (B) a domestic partnership,
           (C) a domestic corporation,

35
Treas. Reg. § 1.250(b)-5(g)(1); an exception is provided for services provided with respect to property
temporarily in the United States if certain specified conditions are met. Treas. Reg. § 1.250(b)-5(g)(2)(i)-
(iv).
36
However, where either the origin or the destination of the service is outside of the United States, but not
both, then 50 percent of the gross income from the transportation service is considered derived from
services provided to a recipient, or with respect to property, located outside the United States. Treas.
Reg. § 1.250(b)-5(h).

POSTS-110409-24 9

                (D) any estate (other than a foreign estate, within the meaning of
                paragraph (31)), and
                (E) any trust if-
                       (i) a court within the United States is able to exercise primary
                       supervision over the administration of the trust, and
                       (ii) one or more United States persons have the authority to control
                       all substantial decisions of the trust.

Unlike the definition of “person” in section 7701(a)(1), this definition, using the word
“means” and not “including,” is exclusive. It does not include the U.S. government,
which indicates that the U.S. government is not a “United States person” under this
definition. But this is not determinative of whether it is a person more generally. 37

The issue has been resolved by the courts, which have focused on the word “include,”
in section 7701(a)(1), rather than the word “mean.” Cases interpreting section
7701(a)(1) and its predecessors have concluded that a government can be a person in
the context of the Code, holding section 7701(a)(1) (and its similarly worded
predecessor) not to be exhaustive in order to have a sensible result in the statute’s
broader context. Therefore, although there is a general “manifestly incompatible”
exception to the definitions contained in the flush language of section 7701(a), recourse
to the exception is unnecessary here.

In Estate of Wycoff v. Commissioner,38 for example, the Tenth Circuit held that both the
state of Utah and the United States are persons within the meaning of section 7701(a).
The case concerned the marital deduction in section 2056 of the Code, which reduces
the value of an estate subject to the estate tax in section 2001 by the amount that
passes to a surviving spouse. So-called “terminable interests” passing to a surviving
spouse do not qualify for the deduction (i.e., do not reduce the value of the estate), but
an exception to this rule in section 2056(b)(5) permits certain terminable interests to
qualify, provided that neither the executor of the estate nor anyone else is empowered
to transfer any part of the interest to “any other person.” In Wycoff, the executor was
empowered to pay state and Federal taxes out of the terminable interest. The question
in the case was whether that constituted the power to transfer the interest to another
person, such that the terminable interest did not qualify for the marital deduction. 39

The petitioner in Wycoff argued that an executor did not have the power to transfer any
part of the surviving spouse’s life estate to “any other person” because the executor had

37
Because section 250(b)(4)(B) refers to the provision of services “to any person” without more, this
discussion need not and does not address whether the U.S. government is a “person who is not a United
States person,” the term used in section 250(b)(4)(A)(i) in the FDDEI sales context that is not at issue
here.
38
506 F.2d 1144 (10th Cir. 1974).
39
Id. at 1151.

POSTS-110409-24 10

power to pay only death taxes from the spouse’s life estate, and death taxes would be
paid to the United States or the state of Utah, which Wycoff argued were not persons
under section 7701(a)(1). 40 The court rejected the petitioner’s argument and pointed to
what is now section 7701(c) (located at I.R.C. § 7701(b) at the time of the opinion) as
providing that the definition is not exhaustive. 41 The court reasoned that, "[w]hether
‘person’ includes a state or the United States depends on the legislative context in
which the word is found,” 42 and noted that the marital deduction “contemplates . . . that
the interest will be available for state taxation when the surviving spouse dies,” which
would not be the case if payment of taxes out of the interest were permitted. 43 The court
concluded: “Thus, when considered in this context the United States and the state of
Utah should not be . . . excluded from the term ‘persons,’ for to do this would be out of
harmony with the marital deduction provision” and “would carve out a judicial loophole
which Congress did not intend to create.” 44

Similarly, in Ohio v. Helvering,45 the Supreme Court held that the government of a state
qualified as a person under a predecessor to present-law section 7701(a)(1). There, the
state of Ohio argued that it was not subject to an excise tax that used the term “every
person” in the definition of a retail or wholesale liquor dealer. The Supreme Court
looked to the definition of “person” in section 11 (a predecessor to present-law section
7701), which provided that, “the word ‘person,’ as used in this title, shall be construed to
mean and include a partnership association, company, or corporation, as well as a
natural person.” 46 Noting that “whether the word ‘person’ or ‘corporation’ includes a
state or the United States depends upon the connection in which the word is found,” 47
the Court held that the state was a person within that definition. 48

40
Id.
41
Id.
42
On this point, the court cited Ohio v. Helvering, 292 U.S. 360, 370 (1934) (discussed herein), and Sims
v. United States, 359 U.S. 108, 112 (1959), both of which hold that states are included in the definition of
the term “person” as used in the Code (in a predecessor to section 7701(a)(1) in Ohio v. Helvering, and in
I.R.C. § 6332, which has its own non-exhaustive definition of person, in Sims).
43
Wycoff, at 1151.
44
Id. The 10th Circuit reached a similar conclusion in Chickasaw Nation v. United States, 208 F.3d 871,
878 (10th Cir. 2000). There, the court found that the definition of the word “person” in section 7701(a)(1)
was not exhaustive and held that the Chickasaw Nation tribal government was a person subject to certain
federal excise taxes.
45
292 U.S. 360 (1934).
46
Id. at 370.
47
Id. (citing Stanley v. Schwalby, 147 U.S. 508, 517, which found that the word ‘person’ in the statute
under consideration would include the United States as a body politic and corporate.)
48
Id. at 371.

POSTS-110409-24 11

In contrast, in Return Mail Inc. v. United States Postal Service,49 the Supreme Court
held that the United States Postal Service was not a “person” for purposes of certain
patent law statutes. 50 The Court concluded that there was no “indication in the text or
context of the statute that affirmatively shows that Congress intended to include the
Government” within the term “person” as used in the patent statutes. 51 Return Mail, Inc.,
which owned a patent on a method for processing undeliverable mail, had sued the U.S.
Postal Service seeking compensation for the unauthorized use of the invention. The
issue before the Court was whether a federal agency is a “person” that could seek
review under administrative review proceedings established under the Leahy-Smith
America Invents Act (“AIA”) of 2011, 52 to allow a person other than the patent owner to
challenge the validity of a patent post-issuance. The term “person” was not defined in
the patent statutes.

The Court’s ruling in Return Mail can be distinguished. There, the Court was interpreting
the term “person” for purposes of who could challenge the validity of a patent post-
issuance under the patent statutes, and determined that “person” should not include a
federal agency in that context. The Court employed an “interpretive presumption that
‘person’ does not include the sovereign,” which was applicable only “[i]n the absence of
an express statutory definition” (i.e., because “[t]he patent statutes do not define the
term ‘person’”). 53 This presumption is a construction of the definition of “person” in the
Dictionary Act, 54 which is used when a term is not specifically defined in the operative
statute.55 By contrast, sec. 7701(a)(1) contains an express and specific statutory
definition. The Court’s reasoning in Return Mail thus interpreted the term in the absence
of an affirmative definition from Congress in the relevant patent statutes, and the Court
made no indication that this same meaning would apply in a statute containing an

49
587 U.S. 618 (2019).
50
Id. at 637.
51
Id. at 628-29.
52
The three types of proceedings established under the AIA are: (1) inter partes review, (2) post-grant
review, and (3) covered-business-method review.
53
Return Mail, at 626.
54
Under the Dictionary Act, 1 U.S. Code § 1, “the words ‘person’ and ‘whoever’ are defined to include
corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well
as individuals.”
55
Return Mail at 627. See also Rowland v. Calif. Men’s Colony, 506 U.S. 194, 200 (1993) (“[C]ourts
would hardly need direction where Congress had thought to include an express, specialized definition for
the purpose of a particular Act; ordinary rules of statutory construction would prefer the specific definition
over the Dictionary Act's general one. Where a court needs help is in the awkward case where Congress
provides no particular definition.”); Mine Workers, 330 U.S. 258,275 (1947) (“The Act does not define
‘persons'”).

POSTS-110409-24 12

express and previously construed definition of “person.” For example, no inconsistency
was noted with respect to the Court’s earlier decision in Ohio v. Helvering, discussed
above, in which the Court considered and concluded in the context of a tax statute that
a state or the United States could be included in the term “person.” In other words,
Return Mail construed “person” for purposes of the Dictionary Act, and thus for
purposes of statutes lacking a specific definition of the term, whereas Ohio construed
“person” for purposes of the Code, where a specific definition is provided. While the
texts of the Dictionary Act definition and the Internal Revenue Code definition of
“person” are similar, the Court has emphasized the importance of statutory context in
construing “person.” 56 The other tax cases discussed above have reached the same
conclusion in interpreting the term “person” for other purposes of the Code.

Turning to the statute and regulations at issue here, a condition for claiming the section
250 deduction with respect to certain income from services is that the services be
provided (as relevant here) “to any person” not located within the United States. In
connection with the provision of services (other than a property service or a
transportation service with respect to property), there is, by definition, a recipient
(beneficiary, counterparty), 57 and the sole factor the statute looks to is the location of
that recipient. There is no indication in the statute or the legislative history that, by using
the word “person,” Congress thought it was excluding services performed abroad for the
U.S. government from eligibility. Accordingly, in this context, the text of section 250
does not suggest that the word “person” should exclude the U.S. DoD, a part of the U.S.
government.

Further, section 250 and the accompanying regulations do not define the term person,
but they indicate that a government can be a person. Specifically, in defining “foreign
person” for purposes of the regulations addressing FDDEI, Treas. Reg. § 1.250(b)-
3(b)(5) provides, “[t]he term foreign person means a person (as defined in section
7701(a)(1)) that is not a United States person and includes a foreign government or an
international organization.” 58 Thus, the regulations under section 250 clarify that a
government can be a person, and that a foreign government is a non-U.S. person. It
stands to reason that the U.S. government would therefore be a person in this context. 59

56
See, e.g., Rowland, at 199 (1993) (explaining that the Dictionary Act’s proviso that its definition of
person applies “unless the context indicates otherwise” should be read to require inquiry into how “the
text of the Act of Congress surrounding the word at issue, or the texts of other related congressional Acts”
affect the proper understanding of how the word is used).
57
Cf. Treas. Reg. § 1.482-9(l)(1) (defining “controlled services transaction" by reference to a benefit
provided to another member of a controlled group of corporations).
58
Emphasis added.
59
The specificity with respect to foreign governments does not create a negative inference about similar
treatment of the U.S. government because the treatment of foreign governments is specified in the
context of the FDDEI sales rules, where the only relevant persons are foreign persons. Therefore, the rule
merely clarifies that governments are persons in the context of that rule.

POSTS-110409-24 13

Furthermore, the policy embodied in the statutory text and regulations supports reading
the word “person” in section 250(b)(4)(B) to include the U.S. government. As discussed
above, in Wycoff, the Tenth Circuit reasoned that, “[w]hether ‘person’ includes a state or
the United States depends on the legislative context in which the word is found.” 60
Here, the legislative context supports reading the term “person” to refer to the United
States government. When serving as a purchaser of a service, as contemplated here,
the United States or an agency or instrumentality thereof is acting in its capacity as a
commercial entity, which supports treating it as a “person,” like any other commercial
entity.61 Further, the preamble to the proposed regulations states that the purpose of the
section 250 deduction is generally intended “to help neutralize the role that tax
considerations play when a domestic corporation chooses the location of intangible
income attributable to foreign-market activity, that is, whether to earn such income
through its U.S.-based operations or through its CFCs.” 62 If services provided by a
domestic corporation outside the United States to a foreign government, which is clearly
a person under the regulations, can qualify as FDDEI services, but services provided to
the U.S. government outside the United States could not, that discrepancy would
perversely make providing services to the U.S. government outside the United States
one of the few activities, if not the only activity, involving the performance of services
outside the United States with respect to which Congress preserved an incentive for
offshoring. That cannot have been congressional intent, and the statute should not be
interpreted to provide that result.

CONCLUSION

DC’s consulting services provided to U.S. DoD employees located on a military base in
country X qualify as general services provided to a business recipient. They qualify as
general services because they are not property services (because they are not provided
with respect to tangible property), transportation services (because they do not involve
the transportation of persons or property), or proximate services (because not
substantially all of the services are performed in the physical presence of U.S. DoD
employees located on the military base). The general services are treated as provided
to a business because they are not provided to a consumer and because the U.S. DoD
is not a related party of DC. The U.S. DoD is the recipient of the service. A general
service is treated as provided to the U.S. DoD outside the United States to the extent
that the service confers a benefit on the U.S. DoD’s operations outside the United
States. The determination of which operations of the U.S. DoD outside the United
States benefit from the service, and the extent of such benefit, is determined by treating

60
Wycoff, at 1151.
61
See Ohio v. Helvering, at 371 (“the state itself, when it becomes a dealer in intoxicating liquors, falls
within the reach of the tax either as a ‘person’ under the statutory extension of that word to include a
corporation, or as a ‘person’ without regard to such extension.”).
62
85 Fed. Reg. 43065.

POSTS-110409-24 14

the U.S. DoD’s operations outside the United States as one or more controlled
taxpayers separate from the U.S. DoD’s operations inside the United States. In
particular, here, where the services benefit only the military base in country X, it is
appropriate to treat that military base as a separate controlled taxpayer located outside
the United States and to treat the general services as 100 percent for the benefit of that
controlled taxpayer. Therefore, the service recipient is treated as located outside the
United States. Finally, it is appropriate to treat U.S. DoD, a part of the U.S. government,
as a person for these purposes. Therefore, the consulting services provided by DC to
U.S. DoD with respect to its military base in country X are “services provided . . . to any
person . . . not located within the United States,” and the income derived therefrom
qualifies as FDDEI.

Please call (202) 317-6939 if you have any further questions.