IRS applies manufacturing exception to CFC that does not own and pass title to products sold

June 2013


Under the interpretation adopted in the PLR, a company in the supply chain can derive income from the sale of personal property where it does not pass title but only engages in supporting sales activities and can still qualify for the manufacturing exception. This could occur, as it did under the facts of the PLR, where a principal company provides manufacturing and sales support to the supply chain and is compensated based on a percentage of the proceeds from the ultimate sale of the finished products.

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