- 22 -
otherwise compensated therefor), the payments constitute
dividends from a foreign source received by DPP on behalf of the
shareholder-partners.
Based then on the above characterizations as foreign source
income, petitioners assert that they are entitled to foreign tax
credits for the taxes paid to the Israeli Government on the
special commissions and that both types of payments are to be
included in calculating the amount of the credits. In the
alternative, if the claimed credits are reduced or disallowed,
petitioners seek a deduction for foreign taxes paid.
Lastly, petitioners dispute application of the section
6662(a) penalty on the grounds that they acted reasonably and in
good faith in relying on a professional tax adviser, with respect
to complex matters.
B. Respondent’s Position
Conversely, respondent asserts that petitioners’
characterizations impermissibly seek to reduce U.S. income taxes
through improper claiming of foreign tax credits and assigning of
income among entities. Concerning the special commissions,
respondent maintains that petitioners should not be permitted to
depart from the position repeatedly taken for both U.S. and
Israeli reporting purposes that the amounts represented
compensation for services. Moreover, since no recipient
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011