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shareholders the Company paid them a special commission in the
amount of * * * [a sum in New Israeli Shekels].” (Hereinafter,
we shall for convenience adopt this terminology and shall refer
to these payments from FIL as special commissions.) The special
commissions were also deducted as selling expenses by FIL for
purposes of its Israeli tax returns.
The individual recipients reported the special commissions
on the line of their income tax returns designated “Other
income”. They also attached statements further describing this
other income as “commission income Flocktex Ind” or simply
“Flocktex Ind” (with various terms and abbreviations being used
for Industries). They did not report the amounts as dividends on
their Schedules B. For each of the years that special
commissions were paid, the sums were included as foreign source
income in the “General limitation income” category. Statements
accompanying their Forms 1116 for 1991 additionally identify the
income as derived from a “business or profession”. The
recipients claimed foreign tax credits on their 1991, 1992, and
1994 returns for the Israeli taxes withheld by FIL on the special
commissions.
The Other Deitsch Entities
Members of the Deitsch family also conducted business and
investment dealings through other partnerships and S corporations
during the period at issue. In particular, the family members
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