ExpertMedium1 markMultiple Choice
CPA · Question 29 · Area II: Entity Tax Compliance
A U.S. corporation manufactures inventory in the U.S. and sells it in Japan with title passing in Japan. Under general sourcing rules (IRC §863(b) as amended by TCJA), how is the income sourced?
A U.S. corporation manufactures inventory in the U.S. and sells it in Japan with title passing in Japan. Under general sourcing rules (IRC §863(b) as amended by TCJA), how is the income sourced?
Answer options:
A.
100% Foreign Source
B.
50% U.S. Source, 50% Foreign Source
C.
100% U.S. Source
D.
Allocated based on assets in each country.
How to approach this question
Recall the TCJA change to IRC §863(b). Income from inventory produced in the U.S. and sold abroad is sourced solely based on the place of production (100% U.S.).
Full Answer
C.100% U.S. Source✓ Correct
C
IRC §863(b). Income from the sale of inventory produced within the U.S. and sold without the U.S. is sourced 100% to the place of production (U.S.).
Common mistakes
Applying the old 50/50 rule or the title passage rule.
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