International Multifoods Corporation and Affiliated Companies - Page 9

                                        - 9 -                                         

                    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.                                             

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