26 U.S. Code § 865 - Source rules for personal property sales
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.
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).
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.
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.
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).
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.
The term “inventory property” means personal property described in paragraph (1) of section 1221(a).
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)).
1999—Subsec. (i)(1). Pub. L. 106–170 substituted “section 1221(a)” for “section 1221”.
1996—Subsec. (b)(2). Pub. L. 104–188 substituted “863” for “863(b)”.
1993—Subsec. (b). Pub. L. 103–66 inserted at end “Notwithstanding the preceding sentence, any income from the sale of any unprocessed timber which is a softwood and was cut from an area in the United States shall be sourced in the United States and the rules of sections 862(a)(6) and 863(b) shall not apply to any such income. For purposes of the preceding sentence, the term ‘unprocessed timber’ means any log, cant, or similar form of timber.”
1990—Subsec. (c)(3)(B). Pub. L. 101–508 substituted “section 168(g)(4)” for “section 48(a)(2)(B)”.
1988—Subsec. (d)(2). Pub. L. 100–647, § 1012(d)(12), inserted “franchise,” after “trade brand,”.
Subsec. (d)(4). Pub. L. 100–647, § 1012(d)(1), added par. (4).
Subsec. (e)(1)(A). Pub. L. 100–647, § 1012(d)(2), (9), substituted “(d)(1)(B) or (3)” for “(d)” and “in a foreign country” for first reference to “outside the United States”.
Subsec. (e)(2)(B). Pub. L. 100–647, § 1012(d)(5), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “Subparagraph (A) shall not apply to—
“(i) 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 outside the United States materially participated in the sale, or
“(ii) any amount included in gross income under section 951(a)(1)(A).”
Subsec. (f). Pub. L. 100–647, § 1012(d)(4), amended subsec. (f) generally. Prior to amendment, subsec. (f) read as follows: “If—
“(1) a United States resident sells stock in an affiliate which is a foreign corporation,
“(2) such affiliate is engaged in the active conduct of a trade or business, and
“(3) such sale occurs in the foreign country in which the affiliate derived more than 50 percent of its gross income for the 3-year period ending with the close of the affiliate’s taxable year immediately preceding the year during which such sale occurred,
any gain from such sale shall be sourced outside the United States.”
Subsec. (g)(1)(A)(i). Pub. L. 100–647, § 1012(d)(11), amended cl. (i) generally. Prior to amendment, cl. (i) read as follows: “any individual who has a tax home (as defined in section 911(d)(3)) in the United States, and”.
Subsec. (g)(1)(A)(ii). Pub. L. 100–647, § 1012(d)(3)(A), struck out “partnership,” after “corporation,”.
Subsec. (g)(3). Pub. L. 100–647, § 1012(d)(6)(A), added par. (3).
Subsec. (h). Pub. L. 100–647, § 1012(d)(8), added subsec. (h) and redesignated former subsec. (h) as (i).
Pub. L. 100–647, § 1012(d)(3)(B), added par. (5) to subsec. (h) prior to redesignation as subsec. (i).
Subsec. (i). Pub. L. 100–647, § 1012(d)(8), redesignated former subsec. (h) as (i). Former subsec. (i) redesignated (j).
Pub. L. 100–647, § 1012(d)(6)(B), added par. (3) to subsec. (i) prior to redesignation as subsec. (j).
Subsec. (i)(5). Pub. L. 100–647, § 1012(d)(3)(B), added par. (5) to subsec. (h) prior to redesignation as subsec. (i).
Subsec. (j). Pub. L. 100–647, § 1012(d)(8), redesignated former subsec. (i) as (j). Former subsec. (j) redesignated (k).
Subsec. (j)(3). Pub. L. 100–647, § 1012(d)(6)(B), added par. (3) to subsec. (i) prior to redesignation as subsec. (j).
Subsec. (k). Pub. L. 100–647, § 1012(d)(8), redesignated former subsec. (j) as (k).
Amendment by Pub. L. 106–170 applicable to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. L. 106–170, set out as a note under section 170 of this title.
Amendment by Pub. L. 101–508 applicable to property placed in service after Dec. 31, 1990, but not applicable to any transition property (as defined in section 49(e) of this title), any property with respect to which qualified progress expenditures were previously taken into account under section 46(d) of this title, and any property described in section 46(b)(2)(C) of this title, as such sections were in effect on Nov. 4, 1990, see section 11813(c) of Pub. L. 101–508, set out as a note under section 45K of this title.
Amendment by section 1012(d)(1)–(4), (6), (8), (9), (11), (12) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title.
For nonapplication of amendment by section 1211(a) of Pub. L. 99–514 (enacting this section) to the extent application of such amendment would be contrary to any treaty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amendment relates, see section 1012(aa)(3), (4) of Pub. L. 100–647, set out as a note under section 861 of this title.
Pub. L. 99–514, title XII, § 1211(d), Oct. 22, 1986, 100 Stat. 2536, directed Secretary of the Treasury or his delegate to conduct a study of source rules for sales of inventory property and, not later than Sept. 30, 1987 (due date extended to Jan. 1, 1992, by Pub. L. 101–508, title XI, § 11831(b), Nov. 5, 1990, 104 Stat. 1388–559), to submit to Committee on Ways and Means of House of Representatives and Committee on Finance of Senate a report of such study (together with recommendations he deemed advisable).
Written determinations for this section
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- Losses : 2010-01-01
- Other : 2007-10-12
- Source Rules for Personal Property Sales : 2007-10-12
- Capital Gains : 2001-12-28
- Income From Sources Within Puerto Rico : 2001-12-28
- Residence of the Seller Determines Source : 2001-12-28
- Organizations Not Treated as a Partnership : 2001-07-13
- Manner of Making Election : 2001-07-13
- Deferred Payments : 2001-07-13
- Sales by Nonresidents : 2001-07-13
- Lawful Permanent Resident Green Card Test : 2001-07-13
- Financial Instruments : 1999-09-03
- Treaty Interaction Rule : 1999-05-07
- Allocation of Taxes : 1999-05-07
- Associations v. Corporations : 1999-03-19
- Repeal of Tax On Interest of Foreign Corporations Received From Certain Portfolio Debt Investments : 1999-03-19
- Residence of the Seller Determines Source : 1999-03-19
- Source of Exchange Gain or Loss : 1999-03-19
- Notional Principal Contract Income : 1999-03-19
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