The remaining portion of such gain (not in excess of the depreciation deductions) is treated as foreign source. Any gain in excess of the depreciation deductions is sourced as if the property were “inventory property” under IRC 861 through 863. This rule stops a taxpayer from taking deductions against U.S.-source income (which reduces his or her basis in the property) and later avoiding tax on the sale of the property through sourcing rules.Sales of personal property through a U.S. or foreign office or fixed place of business.

Under the income sourcing rules, U.S. source income “includes rentals or royalties from property located in the United States or from any interest in such property, including rentals or royalties for the use of, or for the privilege of using, in the United States patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like property.” Id. § 1.861-5; see also 26 U.S.C. § 861(a)(4).The transfer of nonexclusive rights to reproduce a computer program for a limited period of time is indicative a license. 26 C.F.R. § 1.861-18(h) ex. (6)(ii)(B), (8)(ii).Id. § 1.861-18(c)(1)(ii). Among the factors that are considered in determining whether the benefits and burdens of ownership have been transferred to the purchaser is any limitation on the p of the period of time during which transferee may use the computer program.

anner for the principal purpose of tax avoidance, the foregoing rules do not apply. Instead, all relevant facts and circumstances, including the place of use, the place where the transaction was negotiated and agreed upon, and the terms of the agreement, will be considered, and the sale will be treated as having occurred where the substance of the sale occurred. The Final Regulations also clarify that the source of income from transactions involving digital content is determined under generally applicable sourcing rules, and the location where the sale is deemed to occur is relevant for sourcing income that is sourced based on the location of sales, but not income that is sourced on a different basis (such as licenses, leases, and certain sales of self-produced inventory).Proposed Regulations (REG-107420-24)The Treasury and IRS have issued a notice of proposed rulemaking regarding sourcing gross income from cloud transactions.Gross income from cloud transactions would be sourced under Sections 861(a)(3) or 862(a)(3) according to where the service is performed. The place of performance is determined using a fraction composed of three factors—the intangible property factor, the personnel factor, and the tangible property factor (Sourcing Factors). Intangible Property Factor: This factor generally includes certain specified research or experimental expenditures and royalty expenses relating to the cloud transaction.Personnel Factor:This factor generally includes certain compensation relating to the cloud transaction that is not taken into account in the intangible property factor.Tangible Property Factor: This factor generally includes certain depreciation and rent expenses for tangible property relating to the cloud transaction.To determine gross income from a cloud transaction from sources within the United States, the following formula is used:Request for Comments (Notice 2025-6)Finally, the Treasury and the IRS have requested comments regarding the consequences or interactions tha

they are an illegal alien. As such, a biological male alien could not represent the U.S. in a women’s athletic competition sanctioned by the International Olympic Committee. Or could they? Anyway, they couldn’t vote in a federal election. Right? IRC Sec. 871(a), (b); Sec. 861, 862. This taxable income is subject to federal income tax at the same graduated rates that apply to U.S. persons.U.S. source income includes, for example, dividend income received from U.S. corporations, interest on bonds of U.S. residents, wages for services performed in the U.S., rents from property located in the U.S., and royalties for the use of intangibles in the U.S. IRC Sec. 871(b) and Sec. 864(c).For example, an NRA will generally be engaged in a U.S. trade or business if they own and operate a business that sells services, products, or merchandise in the U.S. Thus, the profit from the sale in the U.S. of inventory that was purchased either in the U.S. or abroad is effectively connected business income. IRC Sec. 861(a)(6), Sec. 863, Sec. 865(b).Another example: gain from an NRA’s sale or exchange of U.S. real property is taxed as if the NRA were engaged in a U.S. trade or business; this gain is also effectively connected business income. IRC Sec. 897 (FIRPTA). IRC Sec. 873, Sec. 874. IRC Sec. 875. IRC Sec. 871(b)(2). In general, the nonresident alien would still be subject to U.S. tax for other U.S. source investment income, the gross amount of which may be subject to tax at the rate of 30% (collected by withholding) or at a lower treaty rate, if applicable. IRC Sec. 871(a); Sec. 1441. See IRS Form 8833, Treaty-Based Return Position Disclosure. IRC Sec. 864(c)(3). There are circumstances in which some kinds of foreign source income may be treated as effectively connected with a U.S. trade or business. IRC Sec. 864(c)(4). IRC Sec. 864(c). In determining whether the asset-use or business-activities tests are met, “due regard” is given to whether such assets or such income or gain were accounted for throu

stency and symmetry the seller or licensor (and by extension the IRS) will care a great deal about the acquirer’s (or licensee’s) tax treatment of these payments because royalty income is typically taxed at ordinary rates while gains on sales can achieve capital gain rates.Finally it can be difficult to distinguish between sales and licenses. Simplistically a transfer requires all substantial rights of an asset to be assigned to the acquirer. However, modern commercial agreements can be quite complex. Some agreements might provide quasi-exclusive rights, bespoke payment terms, reversionary rights, and other sophisticated components. There may also be a difference between what constitutes a transfer for federal income tax purposes versus local law. As such it is worthwhile to consult both tax and IP professionals for high dollar transactions. All “§” references are to specific sections of the Internal Revenue Code (the “Code”) unless otherwise noted. This includes income sourcing under §§ 861 et seq. in addition to general characterization concerns. Treas. Reg. § 1.263(a)-4(b)(1)(v).Id. See also Treas. Reg. § 1.263(a)-4(e). Treas. Reg. § 1.1263(a)-4(e)(4)(ii)(A), (B). Treas. Reg. § 1.1263(a)-4(e)(4)(i). Treas. Reg. § 1.1263(a)-4(e)(4)(iii). Treas. Reg. § 1.1263(a)-4(e)(4)(iii). Treas. Reg. § 1.1263(a)-4(h). This post does not discuss § 212 or the anti-churning rules in § 197. In other words, this post assumes the rules of § 197(c) and (f)(9) do not apply to transactions described herein. § 197(a), (b), (c)(1). Treas. Reg. § 1.197-2(b), -2(c). § 197(f)(1). This rule prevents a taxpayer from accelerating (reducing) the 15-year amortization period by partial dispositions of IP. § 197(f)(1)(B). Treas. Reg. § 1.197-2(g)(1)(iii).See, e.g., Treas. Reg. § 1.197-2(g). § 197(e)(4). § 197(e)(4).See CCA 201543014. This CCA assumes that the domain names are acquired from an operational site. Treas. Reg. § 1.197-2(e)(2)(i). Treas. Reg. § 1.197-2(e)(2)(A)-(C). Treas. Reg. § 1.167(a)-14.

ms to help them cope – or to forget, like those of Odysseus’s men who, having eaten “of the honey-sweet fruit of the lotus.” gave up all thought of returning home. Book Nine of Homer’s Odyssey. A “controlled foreign corporation” (“CFC”) is one in which U.S. persons own, or are considered as owning, more than 50 percent of the total combined voting power or of the total value of all classes of stock of the foreign corporation on any day during the taxable year of the corporation. IRC Sec. 957. IRC Sec. 951 and Sec. 951A. With respect to any foreign corporation, a “U.S. shareholder” is a United States person who owns or is considered as owning 10 percent or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation, or 10 percent or more of the total value of shares of all classes of stock of such foreign corporation. IRC Sec. 951(b). IRC Sec. 61(a) (“…from whatever source derived…”). (More on this later.) The sourcing rules are found in IRC Sec. 861 through 865. This includes a foreign “eligible” entity that is owned by a U.S. business and has elected to be treated as a disregarded entity for U.S. tax purposes. Reg. Sec. 301.7701-3; IRS Form 8832, Entity Classification Election. Each is “transparent” for tax purposes – a passthrough. See IRC Sec. 701 and 702 as to partnerships. For a somewhat analogous provision, see the personal holding company rules under IRC Sec. 541 through Sec. 547. The Code imposes a 20% tax (same as the tax on a dividend distribution to an individual shareholder) on the undistributed personal holding company income of a personal holding company. The purpose of the tax, as in the case of the accumulated earnings tax (IRC Sec. 531 through Sec. 537), is to prevent the “improper” deferral of taxation of corporate income at the level of the corporation’s shareholders where the corporation fails to pay dividends. IRC Sec. 951 through Sec. 965. Directly, indirectly, or through the application of certain attributi

ed by the TCJA; in other words, contrary to the intent of Congress, they are including in their gross income and paying income tax on the Subpart F income and GILTI of foreign corporations that should not be treated as CFCs.In many cases, such compliance must certainly be an expensive proposition. Query whether any taxpayers are choosing not to include this income for purposes of determining their tax liability, while also disclosing their position and citing the Committee reports and the colloquy from the floor of the Senate described above in support thereof.Alternatively, are they paying the tax but filing protective refund claims to toll the statute of limitations?Perhaps more importantly, are any tax return preparers comfortable with either of the foregoing approaches given the language of the Code and the risk of penalties?Or has Congress changed its mind regarding downward attribution? See below. IRC Sec. 61(a) (“…from whatever source derived…”). The sourcing rules are found in IRC Sec. 861 through 865.Most U.S. tax treaties include a so-called “savings clause” that allows the U.S. to tax its residents as if the treaty were not in force. This provision is intended to prevent U.S. residents from using a treaty to reduce their U.S. income tax liability. See Article 1, Paragraph 4 of the U.S. Model Income Tax Convention. This includes a foreign “eligible” entity that is owned by a U.S. business and has elected to be treated as a disregarded entity for U.S. tax purposes. Reg. Sec. 301.7701-3; IRS Form 8832, Entity Classification Election. Each is “transparent” for tax purposes – a passthrough. See IRC Sec. 701 and 702 as to partnerships. For an analogous provision, see the personal holding company rules under IRC Sec. 541 through Sec. 547. The Code imposes a 20% tax (same as the tax on a dividend distribution to an individual shareholder) on the undistributed personal holding company income of a personal holding company. The purpose of the tax, as in the case of the accumula

Nonetheless, there are several takeaways from the decision: If a foreign corporation included income in its CBT base that was not included in its federal taxable income, it should seek a refund. A foreign corporation is not subject to CBT on items excluded from federal taxable income either as a result of applying the federal sourcing provisions under I.R.C. §861, or the protection of a U.S. tax treaty. Although not specifically addressed in Infosys, a foreign taxpayer may be able to include its worldwide property and payroll in its apportionment-factor denominators—even though its tax base includes only U.S. source income.