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two types of payments received by Ps from an Israeli
corporation: (1) Payments made directly to certain of
Ps and upon which taxes were paid to the Israeli
Government, and (2) payments made to a partnership and
reported by certain of Ps as their distributive shares
of partnership income.
Held: The payments made directly to Ps are to be
characterized as compensation for services performed
within the United States. Hence, the amounts are not
to be treated as foreign source income for purposes of
calculating the credit for foreign taxes under sec.
901, I.R.C.
Held, further, the payments made to the
partnership were not properly reported as partnership
income. They are not to be allocated as income to the
corporate P. Like the remittances above, these
payments are to be characterized as compensation for
services earned by the individual Ps, and as U.S.
source income to the individual Ps, except as to the
two Ps who resided in Israel.
Held, further, Ps are not entitled to seek a
deduction for foreign taxes paid under sec. 164,
I.R.C., in lieu of the disallowed foreign tax credits.
Held, further, the individual Ps are liable for
accuracy-related penalties pursuant to sec. 6662(a),
I.R.C., but the corporate P is not.
Robert J. Percy and Bruce Judelson, for petitioners.
Stephen C. Best and Bradford A. Johnson, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
NIMS, Judge: Respondent determined the following
deficiencies and penalties with respect to petitioners’ Federal
income taxes for the taxable years 1991 through 1994:
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