A U.S. Corporation is determining the source of its income. It manufactures inventory in the U.S. and sells it to customers in France with title passing in France. How is the income sourced?

Answer options:

100% U.S. Source

100% Foreign Source

Apportioned between U.S. and Foreign Source based on production and sales.

Sourced based on the residence of the payor.

How to approach this question

Manufactured Inventory Sales (Section 863(b)): Split source. Part is production (where made), Part is sales (where sold).

Full Answer

C.Apportioned between U.S. and Foreign Source based on production and sales.✓ Correct

IRC §863(b). Income from the sale of inventory produced within the U.S. and sold without the U.S. (or vice versa) is treated as derived partly from sources within and partly from sources without the U.S.

Common mistakes

Applying the title passage rule (which applies to purchased inventory) to manufactured inventory.

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