Orono Corporation manufactured inventory in the United States and sold the inventory to customers in Canada. Gross profit from the sale of the inventory was $300,000. Title to the inventory passed FOB: destination. Under the 50/50 method, how much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

Question

Quizplus · Accepted Answer

Under §863(b), 50 percent of the gross income is sourced based on where the assets producing the inventory are located and 50 percent is sourced based on title passage. Because title passes outside the United States and the assets are located in the United States, 50 percent of the gross profit is treated as U.S. source income for FTC purposes.

Orono Corporation Manufactured Inventory in the United States and Sold