Income Sourcing Rules – Foreign-Source And U.S.-Source Income

In the international tax context, the source of a taxpayer's income can have significant implications. The source of income may determine whether a taxpayer qualifies for a foreign tax credit with respect to the income. Or, because a foreign person is generally subject to U.S. tax only on U.S.-sourced income, the source of a taxpayer's income may determine whether the income is even subject to tax in the first place.

It is relatively straightforward to determine the source of many types of income. Depending on the category of income, its source may turn on familiar factors such as the status or nationality of the payor or recipient, or the location of the activities or assets that generate the income.