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domestic corporation and compensation for labor or personal
services performed in the United States are to be treated as
income from sources within the United States. Conversely,
section 862(a)(2) and (3) specifies that dividends other than
those derived from sources within the United States under section
861(a)(2) and compensation for labor or personal services
performed without the United States are to be treated as income
from without the United States. Thus, payment for services
rendered outside the United States and dividends from a foreign
corporation typically constitute foreign source income for
purposes of calculating the section 901 credit.
In the instant matter, the parties apparently do not dispute
these basic principles. They disagree, however, as to the
characterization of the payments at issue and, therefore, as to
the source from which they must be deemed to flow.
2. Form and Substance of Transactions
In characterizing a payment for tax purposes, consideration
must often be given to ideas of substance and form and to the
proper resolution of any dichotomy between the two. As a general
rule, the substance of a transaction controls tax treatment. See
Gregory v. Helvering, 293 U.S. 465, 469-470 (1935). Nonetheless,
where either the Commissioner or a taxpayer seeks to assert the
substance of a transaction over its form, his or her respective
ability to do so differs. See Commissioner v. National Alfalfa
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