Items Not Specified in Sections 861 or 862

ID:
UILC:
CCA_2023053015371617
863.00-00
[Third Party Communication:
Date of Communication: Month DD, YYYY]
Number: 202346017
Release Date: 11/17/2023
From: ---
Sent: Tuesday, May 30, 2023 3:37:16 PM
To: ---
Cc: ---
Bcc:
Subject: RE: TPC 2023 Form 5074 - WLI#2
My reading of 863(b)(2) is that the production rule for sourcing only applies where the taxpayer-seller is also the producer (“from the sale or exchange of inventory property […] produced (in whole or in part) by the taxpayer”. Where the taxpayer-seller merely purchased the property, the general rule may apply. However, 863(b)(3) is yet another exception to the general rule. It applies where inventory is purchased in a territory, and then sold in the US, in which case source is again allocated between the two jurisdictions. Therefore, I think a disclaimer along the lines of “However, the income from the sale of inventory purchased or produced by a seller within a U.S. territory and sold within the United States is sourced based on an allocation” would be enough to clarify where the general rule does not apply.