Albert J. Miller - Page 8

                                        - 8 -                                         
          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.                                      




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  Next

Last modified: May 25, 2011