Source rules for personal property sales

Except as otherwise provided in this section, income from the sale of personal property— In the case of income derived from the sale of inventory property— 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— Gain (in excess of the depreciation adjustments) from the sale of depreciable personal property shall be sourced as if such property were inventory property. For purposes of this subsection— 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. Except in the case of property of a kind described in section 168(g)(4), if, for any taxable year— For purposes of this subsection— 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). The term “depreciation deductions” means any deductions for depreciation or amortization or any other deduction allowable under any provision of this chapter which treats an otherwise capital expenditure as a deductible expense. In the case of any sale of an 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. 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. Paragraph (2) of subsection (c) shall not apply to any gain from the sale of an 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. Subparagraph (A) shall not apply unless an income tax equal to at least 10 percent of the income from the sale is actually paid to a foreign country with respect to such income. 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). Subparagraph (A) shall not apply to 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 in a foreign country materially participated in the sale. The principles of section 864(c)(5) shall apply in determining whether a taxpayer has an office or other fixed place of business and whether a sale is attributable to such an office or other fixed place of business. If— For purposes of this section— Except as otherwise provided in this subsection— The term “United States resident” means— any individual who— The term “nonresident” means any person other than a United States resident. 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. 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— In the case of gain to which this subsection applies— This subsection shall apply to— Any gain— Any gain which is derived from the receipt of any distribution in liquidation of a corporation— For purposes of this section— The term “inventory property” means personal property described in paragraph (1) of section 1221(a). The term “sale” includes an exchange or any other disposition. 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)). In the case of a partnership, except as provided in regulations, this section shall be applied at the partner level. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purpose of this section, including regulations—