§ 865. Source rules for personal property sales
(a)
General rule
Except as otherwise provided in this section, income from the sale of personal property—
(b)
Exception for inventory property
In the case of income derived from the sale of inventory property—
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.
(c)
Exception for depreciable personal property
(1)
In general
Gain (not in excess of the depreciation adjustments) from the sale of depreciable personal property shall be allocated between sources in the United States and sources outside the United States—
(2)
Gain in excess of depreciation
Gain (in excess of the depreciation adjustments) from the sale of depreciable personal property shall be sourced as if such property were inventory property.
(3)
United States depreciation adjustments
For purposes of this subsection—
(A)
In general
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.
(4)
Other definitions
For purposes of this subsection—
(A)
Depreciable personal property
The term “depreciable personal property” means any personal property if the adjusted basis of such property includes depreciation adjustments.
(d)
Exception for intangibles
(1)
In general
In the case of any sale of an intangible—
(2)
Intangible
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.
(3)
Special rule in the case of goodwill
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.
(4)
Coordination with subsection (c)
(e)
Special rules for sales through offices or fixed places of business
(1)
Sales by residents
(A)
In general
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.
(2)
Sales by nonresidents
(A)
In general
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).
(f)
Stock of affiliates
If—
(2)
such sale occurs in a foreign country in which such affiliate is engaged in the active conduct of a trade or business, and
(3)
more than 50 percent of the gross income of such affiliate for the 3-year period ending with the close of such affiliate’s taxable year immediately preceding the year in which the sale occurred was derived from the active conduct of a trade or business in such foreign country,
any gain from such sale shall be sourced outside the United States. For purposes of paragraphs (2) and (3), the United States resident may elect to treat an affiliate and all other corporations which are wholly owned (directly or indirectly) by the affiliate as one corporation.
(g)
United States resident; nonresident
For purposes of this section—
(1)
In general
Except as otherwise provided in this subsection—
(2)
Special rules for United States citizens and resident aliens
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.
(3)
Special rule for certain stock sales by residents of Puerto Rico
Paragraph (2) shall not apply to the sale by an individual who was a bona fide resident of Puerto Rico during the entire taxable year of stock in a corporation if—
(B)
more than 50 percent of its gross income for the 3-year period ending with the close of such corporation’s taxable year immediately preceding the year in which such sale occurred was derived from the active conduct of a trade or business in Puerto Rico.
For purposes of the preceding sentence, the taxpayer may elect to treat a corporation and all other corporations which are wholly owned (directly or indirectly) by such corporation as one corporation.
(h)
Treatment of gains from sale of certain stock or intangibles and from certain liquidations
(2)
Gain to which subsection applies
This subsection shall apply to—
(A)
Gain from sale of certain stock or intangibles
Any gain—
(i)
which is from the sale of stock in a foreign corporation or an intangible (as defined in subsection (d)(2)) and which would otherwise be sourced in the United States under this section,
(i)
Other definitions
For purposes of this section—
(3)
Treatment of possessions
Any possession of the United States shall be treated as a foreign country.
(j)
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purpose of this section, including regulations—
(k)
Cross references
(1)
For provisions relating to the characterization as dividends for source purposes of gains from the sale of stock in certain foreign corporations, see section
1248.