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nature of a compulsory income tax under U.S. law. The same
factual predicate thus applies under both provisions.
Respondent’s notices of deficiency disallowing the credits
included statements similar to that in docket No. 19358-98: “It
is further determined that since you have not established that
the foreign taxes were paid and/or incurred the credits are not
allowed in their entirety.” Subsequently, the parties stipulated
that David Deitsch, Joseph Deitsch, Jacob Pinson, and Rachel
Sandman “made the following income tax payments to the State of
Israel during the taxable years 1991, 1992 and 1994”, and then
listed the corresponding dollar amounts under the heading
“Israeli Income Tax Paid”. Petitioners apparently, and we
believe reasonably, viewed these stipulations as settling the
question of whether the payments were properly characterized as
foreign income taxes within the meaning of sections 164 and 901.
At the trial which followed submission of the above
stipulations, neither party presented evidence relating to the
nature of the taxes paid. The availability of the section 901
credit was litigated on the basis of whether the payments
petitioners received from their Israeli corporation were U.S. or
foreign source income. Considerations of income source can
reduce or eliminate the amount that may be taken as a credit
under section 901, see sec. 904(a), but have no bearing on the
section 164(a)(3) deduction. Nonetheless, on brief respondent
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