§1.863-1 Allocation of gross income under section 863(a).

(a) In general.

(b) Natural resources.

(1) In general.

(2) Additional production prior to export terminal.

(3) Definitions.

(i) Production activity.

(ii) Additional production activities.

(iii) Export terminal.

(4) Determination of fair market value.

(5) Determination of gross income.

(6) Tax return disclosure.

(7) Examples.

(c) Determination of taxable income.

(d) Scholarships, fellowship grants, grants, prizes and awards.

(e) Residual interest in a REMIC.

(1) REMIC inducement fees.

(2) Excess inclusion income and net losses.

(f) Effective/applicability date.

§1.863-2   Allocation and apportionment of taxable income.

(a) Determination of taxable income.

(b) Determination of source of taxable income.

(c) Effective dates.

§1.863-3   Allocation and apportionment of income from certain sales of inventory.

(a) In general.

(1) Scope.

(2) Special rules.

(b) Methods to determine income attributable to production activity and sales activity.

(1) 50/50 method.

(i) Determination of gross income.

(ii) Example.

(2) IFP method.

(i) Establishing an IFP.

(ii) Applying the IFP method.

(iii) Determination of gross income.

(iv) Examples.

(3) Books and records method.

(c) Determination of the source of gross income from production activity and sales activity.

(1) Income attributable to production activity.

(i) Production only within the United States or only within foreign countries.

(A) Source of income.

(B) Definition of production assets.

(C) Location of production assets.

(ii) Production both within the United States and within foreign countries.

(A) Source of income.

(B) Adjusted basis of production assets.

(iii) Anti-abuse rule.

(iv) Examples.

(2) Income attributable to sales activity.

(d) Determination of source of taxable income.

(e) Election and reporting rules.

(1) Elections under paragraph (b) of this section.

(2) Disclosure on tax return.

(f) Income partly from sources within a possession of the United States.

(g) Special rules for partnerships.

(h) Effective dates.