26 U.S.C. § 865: Source rules for personal property sales

by a United States resident shall be sourced in the United States, or by a nonresident shall be sourced outside the United States. this section shall not apply, and such income shall be sourced under the rules of sections 861(a)(6), 862(a)(6), and 863. by treating the same proportion of such gain as sourced in the United States as the United States depreciation adjustments with respect to such property bear to the total depreciation adjustments, and by treating the remaining portion of such gain as sourced outside the United States. Gain (in excess of the depreciation adjustments) from the sale of depreciable personal property shall be sourced as if such property were inventory property. The term “United States depreciation adjustments” means the portion of the depreciation adjustments to the adjusted basis of the property which are attributable to the depreciation deductions allowable in computing taxable income from sources in the United States. such property is used predominantly in the United States, or such property is used predominantly outside the United States, The term “depreciable personal property” means any personal property if the adjusted basis of such property includes depreciation adjustments. The term “depreciation adjustments” means adjustments reflected in the adjusted basis of any property on account of depreciation deductions (whether allowed with respect to such property or other property and whether allowed to the taxpayer or to any other person). The term “depreciation deductions” means any deductions for depreciation or amortization or any other deduction allowable under any provision of this chapter which treats an otherwise capital expenditure as a deductible expense. this section shall apply only to the extent the payments in consideration of such sale are not contingent on the productivity, use, or disposition of the intangible, and to the extent such payments are so contingent, the source of such payments shall be determined under this part in the same manner as if such payments were royalties. For purposes of paragraph (1), the term “intangible” means any patent, copyright, secret process or formula, goodwill, trademark, trade brand, franchise, or other like property. To the extent this section applies to the sale of goodwill, payments in consideration of such sale shall be treated as from sources in the country in which such goodwill was generated. Notwithstanding paragraph (1), any gain from the sale of an intangible shall be sourced under subsection (c) to the extent such gain does not exceed the depreciation adjustments with respect to such intangible. Paragraph (2) of subsection (c) shall not apply to any gain from the sale of an intangible. In the case of income not sourced under subsection (b), (c), (d)(1)(B) or (3), or (f), if a United States resident maintains an office or other fixed place of business in a foreign country, income from sales of personal property attributable to such office or other fixed place of business shall be sourced outside the United States. Subparagraph (A) shall not apply unless an income tax equal to at least 10 percent of the income from the sale is actually paid to a foreign country with respect to such income. Notwithstanding any other provisions of this part, if a nonresident maintains an office or other fixed place of business in the United States, income from any sale of personal property (including inventory property) attributable to such office or other fixed place of business shall be sourced in the United States. The preceding sentence shall not apply for purposes of section 971 (defining export trade corporation). Subparagraph (A) shall not apply to any sale of inventory property which is sold for use, disposition, or consumption outside the United States if an office or other fixed place of business of the taxpayer in a foreign country materially participated in the sale. The principles of section 864(c)(5) shall apply in determining whether a taxpayer has an office or other fixed place of business and whether a sale is attributable to such an office or other fixed place of business. a United States resident sells stock in an affiliate which is a foreign corporation, such sale occurs in a foreign country in which such affiliate is engaged in the active conduct of a trade or business, and more than 50 percent of the gross income of such affiliate for the 3-year period ending with the close of such affiliate’s taxable year immediately preceding the year in which the sale occurred was derived from the active conduct of a trade or business in such foreign country, is a United States citizen or a resident alien and does not have a tax home (as defined in section 911(d)(3)) in a foreign country, or is a nonresident alien and has a tax home (as so defined) in the United States, and any corporation, trust, or estate which is a United States person (as defined in section 7701(a)(30)). The term “nonresident” means any person other than a United States resident. For purposes of this section, a United States citizen or resident alien shall not be treated as a nonresident with respect to any sale of personal property unless an income tax equal to at least 10 percent of the gain derived from such sale is actually paid to a foreign country with respect to that gain. such corporation is engaged in the active conduct of a trade or business in Puerto Rico, and more than 50 percent of its gross income for the 3-year period ending with the close of such corporation’s taxable year immediately preceding the year in which such sale occurred was derived from the active conduct of a trade or business in Puerto Rico. such gain shall be sourced outside the United States, but subsections (a), (b), and (c) of section 904 and sections 907 and 960 shall be applied separately with respect to such gain. which is from the sale of stock in a foreign corporation or an intangible (as defined in subsection (d)(2)) and which would otherwise be sourced in the United States under this section, which, under a treaty obligation of the United States (applied without regard to this section), would be sourced outside the United States, and with respect to which the taxpayer chooses the benefits of this subsection. which is organized in a possession of the United States, and more than 50 percent of the gross income of which during the 3-taxable year period ending with the close of the taxable year immediately preceding the taxable year in which the distribution is received is from the active conduct of a trade or business in such possession. The term “inventory property” means personal property described in paragraph (1) of section 1221(a). The term “sale” includes an exchange or any other disposition. Any possession of the United States shall be treated as a foreign country. The term “affiliate” means a member of the same affiliated group (within the meaning of section 1504(a) without regard to section 1504(b)). In the case of a partnership, except as provided in regulations, this section shall be applied at the partner level. relating to the treatment of losses from sales of personal property, applying the rules of this section to income derived from trading in futures contracts, forward contracts, options contracts, and other instruments, and providing that, subject to such conditions (which may include provisions comparable to section 877) as may be provided in such regulations, subsections (e)(1)(B) and (g)(2) shall not apply for purposes of sections 931 and 933. For provisions relating to the characterization as dividends for source purposes of gains from the sale of stock in certain foreign corporations, see section 1248. For sourcing of income from certain foreign currency transactions, see section 988. Except as provided in paragraph (2), the amendments made by this section [enacting this section, amending sections 861 to 864, 871, 881, and 904 of this title, and enacting provisions set out below] shall apply to taxable years beginning after December 31, 1986 . In the case of any foreign person other than any controlled foreign corporations (within the meaning of section 957(a) of the Internal Revenue Code of 1954 [now 1986]), the amendments made by this section shall apply to transactions entered into after March 18, 1986 .”