Overview, Part 2:  Source of Income
Channel: International Tax
Date: 2017-11-14

OV P2 Key
Learn the basics of U.S. tax rules on source of income, which vary by type of income.  Included are:
00:00  Introduction
00:40  Source of interest, dividends
01:02  Source of rents and royalties, and services
01:58  Source of inventory sales
03:05  Source of gain on sale of other property
03:59  Quizzes and closing

Here are the quizzes:
1.  Which of the following is the correct source of interest income? 
  a. Where the payment originates
  b. Residence of the payee
  c. Residence of the payor
  d. Depends on type of taxpayer
2.  Bigco Ltda licenses a patent from Harry, a Texas resident, and uses the patent in making shoes at its factory in 

Belize.  What is the source of the income for Harry? 
  a. Foreign
  b. Domestic
3.  Harry also makes shoes in Dallas.  He sells the shoes to Bigco.  Harry's CPA says he needs to generate more 

foreign source income.  What shipping terms should Harry use for selling the shoes?
  a. FOB Belize
  b. CIF
4.  Johan lives in Germany and works for a Swiss company from March 1 through December 31, 2014.  He gets a salary 

of $100,000.  He gets a bonus of $8,000 for work in Singapore.  He works 80 days in the USA and 120 in Singapore.  

In 2015 he gets another bonus of $20,000.  How much of his income is subject to U.S. tax in 2014?
  a. Zero
  b. $40,000
  c. $48,000
  d. $51,200
5.  Johan also gets a dividend from IBM.  What is the source of the income?
  a. Foreign
  b. Domestic

Resources:
26 USC 861  http://uscode.house.gov/view.xhtml?req=(title:26%20section:861%20edition:prelim)%20OR%20(granuleid:USC-

prelim-title26-section861)&f=treesort&edition=prelim&num=0&jumpTo=true
26 USC 862  http://uscode.house.gov/view.xhtml?req=(title:26%20section:861%20edition:prelim)%20OR%20(granuleid:USC-

prelim-title26-section862)&f=treesort&edition=prelim&num=0&jumpTo=true
Article on source of inventory sale:  http://sfoxcpa.com/documents/863b.pdf

Watch other videos in the playlist for the expanded overview (about 1 hour total).

Quiz answers:
1.c
2.a
3.c  (FOB is for bulk shipments only)
4.a. if Johan is not a U.S. citizen
5.b