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(petitioner), an attorney, is employed as vice president,
corporate and legal, with The Irving Group in St. John, New
Brunswick, Canada. Petitioners filed separate Canadian income
tax returns and paid Canadian income taxes totaling $89,722.80
for tax year 1987.
On March 22, 1993, petitioners filed their U.S. Federal
income tax return for tax year 1987. While petitioners reported
some U.S. source income in the form of interest and dividends,
most of the income reported was foreign source, taxable in
Canada. Petitioners reported a tax liability for 1987 of
$42,953.48 and claimed an alternative minimum foreign tax credit
under section 59(a)(1) of $42,497.36.
Respondent determined that petitioners have an alternative
minimum tax liability for 1987 under section 55(b)(1)(A) in the
amount of $17,940, before the application of the section 59(a)
credit, and that section 59(a)(2) limits the amount of the
alternative minimum tax foreign tax credit under section 59(a),
which may be used to offset petitioners' alternative minimum tax
liability to only 90 percent of such liability.
Petitioners do not dispute respondent's determination of
their precredit alternative minimum tax under section
55(b)(1)(A). Petitioners argue, however, that the Convention
Between the United States of America and Canada With Respect to
Taxes on Income and on Capital (U.S.-Canada Treaty), Sept. 26,
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