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Interest that is not Portfolio Interest


Interest that appears to qualify as portfolio interest based on the above definition will not qualify as portfolio interest if it is contingent interest or if is paid to any of the following certain persons:

  • Banks receiving an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business. This does not include cases where the interest is paid on an obligation of the United States.
  • A 10-percent shareholder/
  • A controlled foreign corporation from a related person.


Citations: IRC § 871(h). Tax on nonresident alien individuals IRC § 881(c). Tax on income of foreign corporations not connected with United States business Treas. Reg. § 1.1441-1 – Requirement for the deduction and withholding of tax on payments to foreign persons. IRC § 864(d)(4). Definitions and special rules