RainCo, a U.S. corporation, owns a number of patents related to designing umbrellas. RainCo licenses these patents to unrelated parties. TexCo, a domestic corporation, paid RainCo $100,000 in royalties related to these licenses. TexCo uses the patent information in its manufacturing process in its Canadian plant. IrishCo, an Irish corporation, paid RainCo $25,000 in royalties related to the licenses. IrishCo uses the patent information in its manufacturing process in its Michigan manufacturing plant. How much U.S.-source royalty income did RainCo earn from these licenses?

Question

Quizplus · Accepted Answer

U.S.-source royalty income is determined by where the intellectual property is used. Since IrishCo uses the patent in Michigan, the $25,000 is U.S.-source income. TexCo uses the patent in Canada, so the $100,000 is foreign-source income.