International Multifoods Corporation and Affiliated Companies - Page 8

                                        - 8 -                                         
               Enacted as part of the Tax Reform Act of 1986, Pub. L. 99-             
          514, sec. 1211(a), 100 Stat. 2085, 2533, section 865 provides               
          that income from the sale of noninventory personal property                 
          generally will be sourced at the residence of the seller.4  In              
          explaining the purpose behind the passage of section 865, the               
          House report stated:                                                        

                    Source rules for sales of personal property should                
               reflect the location of the economic activity                          
               generating the income at issue or the place of                         
               utilization of the assets generating that income.  In                  
               addition, source rules should operate clearly without                  
               the necessity for burdensome factual determinations,                   
               limit erosion of the U.S. tax base and, in connection                  
               with the foreign tax credit limitation, generally not                  
               treat as foreign income any income that foreign                        
               countries do not or should not tax.                                    
                    Although the title passage rule operates clearly,                 
               it is manipulable.  It allows taxpayers to treat sales                 
               income as foreign source income simply by passing title                
               to the property sold offshore even though the sales                    
               activities may have taken place in the United States.                  
               In such cases, the foreign tax credit limitation may be                
               artificially inflated.  In addition, foreign countries                 
               are unlikely to tax income on a title passage basis.                   
               Thus, the title passage rule gives U.S. persons the                    
               ability to create foreign source income that is not                    
               subject to any foreign tax, and that may ultimately be                 
               sheltered from U.S. tax with unrelated excess foreign                  
               tax credits.  In addition, it gives foreign persons the                
               ability to generate income that should be subject to                   
               U.S. tax.                                                              

               4Sec. 1211(a) is generally effective for taxable years                 
          beginning after Dec. 31, 1986.  See Tax Reform Act of 1986, Pub.            
          L. 99-514, sec. 1211(c)(1), 100 Stat. 2085, 2536.                           

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  Next

Last modified: May 25, 2011