USM sells products it manufactures in the United States to unrelated foreign and U.S. customers who agree in a written installment debt obligation to pay the purchase price in installments over a period of 5 years. USM sells the installment obligations to Matterhorn for less than the unpaid principal balance on the obligations. Matterhorn either collects the obligations at maturity at face value or sells them to an unrelated party for more than it paid USM for them but less than their face value.

(a) What are the tax consequences of these transactions under Internal Revenue Code Sections 864(d), 951(a)(1)(A) and 954(c)?

(b) Would the result change in part (a) if Matterhorn loaned the funds directly to the unrelated foreign customers who used them to buy the products from USM for cash?