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University of Pittsburgh Law Review

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Since the title passage rule evolved out of the law of commercial sales, it is appropriate to question contemporary judicial and administrative reliance on the concept of title, which, in the modern law of sales, exists largely as an historical footnote. It would be logical at this time to incorporate into source analysis changes in the law of commercial sales and to recognize explicitly that the passage of risk of loss from the seller to the buyer ought to determine the source of gains in international sales of personal property.

The purpose of this Article is (1) to examine the role of the title passage rule in U.S. taxation of multinational enterprises in light of international law and jurisdictional legal principles; (2) to urge that any Congressional reexamination of the rule take into full account both the historical context in which the rule was created and the policy forces that contributed to its maturation; and (3) to reconcile judicial opinions and administrative pronouncements in the tax area with the abandonment of the title concept in commercial law. It is time for the courts to explicitly recognize both the centrality of risk of loss passage and the irrelevance of passage of title and to apply a risk of loss passage rule when determining the source of gains in international sales of personal property. If Congress reexamines the statutory rules for sourcing gains from sales of inventory property, it must recognize that the title passage rule encompasses a risk of loss passage rule under which determinations of source of income reflect the economic substance of the underlying sales transactions, and, therefore, a total repeal of the title passage rule is not warranted.



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