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:

100% Foreign Source

50% U.S. Source, 50% Foreign Source

100% U.S. Source

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

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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