Software qualifying as export property for foreign sales corporations.

• Author: Jose, V. Stewart
• Position: Brief Article

A U.S. corporation that developed and manufactured software programs for accounting, financial reporting and cash management, and marketed the software through a foreign corporation to foreign customers under nonexclusive and nontransferable license terms, qualified for foreign sales corporation (FSC) export tax benefits. In Letter Ruling 9210015, the IRS ruled that the corporation's license restrictions were similar enough to a U.S. copyright to allow the software to be treated as export property under Temp. Regs. Sec. 1.927(a)-IT(g)(3).

The software was manufactured entirely in the United States, including research and development, testing and copying onto disks. Although it was periodically modified for technological advances and was translated into a foreign language, the software was not otherwise customized. Updates made copyrights impractical, therefore, the software was made available to the customer under a nonexclusive and nontransferable license agreement prohibiting reproduction. The U.S. corporation licensed the software to a foreign corporation it formed for the purpose of relicensing the software to unrelated third parties. The FSC benefit was derived on the license between the related parties.

The Service ruled that the license restrictions were similar enough to a U.S...