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contractors in contracts that were more than 1 year in duration.
The decision as to what portion of the overall contract would be
performed in the United States was always made after the end of
the first year of the limited partnership. A-Alpha treated the
cash paid in the year of the contract as a deposit with it, to be
paid later for services to be performed by others. Petitioner
expected that both A-Alpha and ESC would make a profit from their
respective activities. In fact, they did not.
Discussion
Respondent has asserted that the limited partnerships'
payments to A-Alpha for research and development are subject to
the 30-percent withholding tax under section 881(a), and that
petitioner, as general partner of the limited partnerships, is a
withholding agent for purposes of section 1442, and personally
liable under section 1461. Because we conclude that the payments
by the limited partnerships are not subject to the 30-percent
withholding tax of section 881(a), we do not address whether
petitioner was a withholding agent.
There are two taxing regimes that can apply to a foreign
taxpayer. First, where a foreign corporation8 is engaged in a
U.S. trade or business, its effectively connected income from
that trade or business (ECI) is subject to taxation on a net
8 Although we refer to foreign corporations, we note that
there are similar provisions which apply to nonresident alien
individuals. See secs. 871-879, 1441.
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