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(1) Foreign Source TVA Commissions
Petitioners contend that the TVA commission is income from
sources outside the United States. Petitioners contend that such
commission is not effectively connected because it is not one of
the types of foreign source income that is deemed effectively
connected income pursuant to section 864(c)(4)(B) or (C).
Respondent contends that the TVA commission is from sources
within the United States. Respondent contends that such
commission is effectively connected income through an implied
application of the business-activities test.
We have held, supra pp. 116-117, that the TVA commission
consists of three types of income, two of which are foreign
source personal services income and one of which is U.S. source
personal services income. We agree with petitioners that the two
foreign source income items are not effectively connected income
because they do not fall under one of the types of foreign source
income that is deemed effectively connected income pursuant to
section 864(c)(4)(B) or (C). Consequently, we hold that those
two items are not subject to U.S. taxation. However,
petitioners’ argument, which presumes foreign source income, is
inapplicable to the TVA administration fee, which is
characterized as personal services income and which is treated as
income from sources within the United States. We analyze the
administration fee with all remaining LTD commissions and fees.
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