Question

USM sells products it manufactures in the United States to unrelated foreign and U.S. customers who agree in a written installment debt obligation to pay the purchase price in installments over a period of 5 years. USM sells the installment obligations to Matterhorn for less than the unpaid principal balance on the obligations. Matterhorn either collects the obligations at maturity at face value or sells them to an unrelated party for more than it paid USM for them but less than their face value.

(a) What are the tax consequences of these transactions under Internal Revenue Code Sections 864(d), 951(a)(1)(A) and 954(c)?

(b) Would the result change in part (a) if Matterhorn loaned the funds directly to the unrelated foreign customers who used them to buy the products from USM for cash?

Answer 1

a. For the USM, tax consequence will be happen because his income is generated from united state and as per rule,n the case of a nonresident alien individual or a foreigncorporation engaged in trade or business within the United States during the taxable year, the rules set forth in paragraphs (2), (3), (4), (6), (7), and (8) shall apply in determining the income, gain, or loss which shall be treated as effectively connected with the conduct of a trade or business within the United States. so USM will laibe to pau tax.

b. In the second case USM directly sale to non resident therefore As per rule mention in law i.e n the case of a nonresident alien individual or a foreign corporation not engaged in trade or business within the United States during the taxable year, no income, gain, or loss shall be treated as effectively connected with the conduct of atrade or business within the United States.