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their Forms 1040 designated for dividend income, nor did they
ever list the payments as dividends on their Schedules B,
although amounts from other Deitsch entities were reflected
thereon.
Petitioners did include the sums paid as foreign source
income on their Forms 1116 for purposes of calculating the
foreign tax credit, but they indicated on these forms that their
foreign source income fell within the “General limitation income”
category. We note that the instructions for Form 1116 specify:
“Any income from sources outside the United States that does not
fall into one of the categories above is general limitation
income. Common examples of general limitation income are wages,
salary, and overseas allowances of an individual as an employee.”
Further, among the “categories above” is “Passive income”, a
choice not selected by petitioners on their Forms 1116. The
instructions state that “Passive income generally includes
dividends, interest, royalties, rents, [and] annuities”.
Petitioners’ tax return treatment is thus largely consistent
with the special commissions being in the nature of compensation
for services but seems to negate any conclusion that petitioners
were receiving dividends. Their present claims of distributions
of earnings and profits are therefore far more akin to a
disavowal of their tax return treatment than to an affirmance.
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