RainCo, a domestic 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

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

RainCo, a Domestic Corporation, Owns a Number of Patents Related