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the income is to be treated as compensation to the individuals,
we further conclude that payments are U.S. source income to the
individual petitioners other than Mr. and Mrs. Zeiler.
D. Alternative Availability of Deduction
Without further argument or discussion, petitioners included
the following statement in their opening brief:
if the effect of * * * [the Court’s] holdings is to
reduce the amount of foreign tax credits available to
the petitioners during the years at issue, then, as
part of the Rule 155 Computation, the petitioners
reserve the right to elect to take a deduction for the
stipulated foreign taxes paid in lieu of the foreign
tax credit for any or all of such years pursuant to
Code � 164(a)(3) and Treas. Reg. � 1.901-1(d).
This issue had not previously been raised through the pleadings
or at trial, and respondent objected thereto in his reply brief,
asserting that petitioners’ claim was not a proper subject for a
Rule 155 computation and should have been addressed as part of
the merits of the case. Respondent’s opening brief had also
contained, within a general discussion of the law relating to the
foreign tax credit, the statement that “Once a taxpayer elects to
take the credit, section 275(a)(4)(A) prohibits the claiming of
the taxes as a deduction.” Petitioners responded to this remark
in their reply brief with a single paragraph:
Moreover, the respondent contends that once a
taxpayer elects to take a foreign tax credit, Section
275(a)(4)(A) prohibits the claiming of the taxes as a
deduction. In fact, Treas. Reg. � 1.901-1(d) allows a
taxpayer to claim a deduction in lieu of a foreign tax
credit at any time before the expiration of the statute
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