Territorial Tax Equity and Economic Growth Act of 2025

Section 937(a) of the Internal Revenue Code of 1986 is amended—

(1) by striking the last sentence, and

(2) by amending paragraph (1) to read as follows:

(1) who has a substantial presence (determined under the principles of section 7701(b)(3)(A) (applied by substituting 122 days for 31 days in clause (i) thereof) without regard to sections 7701(b)(3)(B), (C), and (D)) during the taxable year in Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, or the Virgin Islands, as the case may be, and

Section 937(b) of such Code is amended—

(1) in paragraph (1), by striking and at the end,

(2) in paragraph (2), by striking the period at the end and inserting, but only to the extent such income is attributable to an office or fixed place of business within the United States (determined under the rules of section 864(c)(5)),, and

(3) by adding at the end the following new paragraphs:

(3) for purposes of paragraph (1), the principles of section 864(c)(2), rather than rules similar to the rules in section 864(c)(4), shall apply for purposes of determining whether income from sources without a possession specified in subsection (a)(1) is effectively connected with the conduct of a trade or business within such possession, and

(4) for purposes of paragraph (2), income from activities within the United States which are of a preparatory or auxiliary character shall not be treated as income from sources within the United States or as effectively connected with the conduct of a trade or business within the United States.

Section 865(j)(3) of such Code is amended by inserting, 932, after 931.

The amendments made by this section shall apply to taxable years beginning after December 31, 2024.