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Because the residence of the seller generally is
the location of much of the underlying activity that
generates income derived from sales of personal
property, the committee believes that sales income
generally should be sourced there. * * * [H. Rept.
99-426, at 360 (1985), 1986-3 C.B. (Vol. 2) 1, 360.5]
Section 865(j)(1) provides that "The Secretary shall prescribe
such regulations as may be necessary or appropriate to carry out
the purpose of this section, including regulations * * * relating
to the treatment of losses from sales of personal property".
There is no dispute that the Paty stock sold by petitioner
constitutes personal property under section 865(a).
5Congress created several exceptions to the application of
the general rule in sec. 865(a). For instance, the general rule
of sec. 865(a) is inapplicable to the sourcing of gain realized
on the disposition of personal property if depreciation
deductions have been allowed with respect to the property for
U.S. tax purposes. Pursuant to a recapture rule, any realized
gain (up to the amount of depreciation taken on the property)
generally receives the same source characterization as the
depreciation deductions. Sec. 865(c)(1). With respect to the
sale of intangible property, sec. 865(d)(1)(A) provides that the
general rule of sec. 865(a) is applicable only if the gain is
recognized on a payment that is not "contingent on the
productivity, use, or disposition of the intangible". In
addition, gain realized on a domestic corporation's sale of stock
in a foreign corporation is sourced outside the United States if
(1) the two corporations would be members of the same affiliated
group but for the exclusion of foreign corporations from
affiliated groups; (2) the foreign corporation is actively
engaged in a trade or business in a particular foreign country;
(3) for the 3-year period ending with the taxable year of the
foreign corporation immediately preceding the year in which the
stock disposition occurs, at least 50 percent of its gross income
was derived from the active conduct of a trade or business in
such foreign country; and (4) title to the stock passes to the
purchaser within the foreign country in which the business is
located. Sec. 865(f), (i)(4). Respondent does not argue that
any of the exceptions to the general rule of sec. 865(a) are
applicable in the instant case.
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